Patricio Aylwin took office as Chile returned to democracy, keeping a market-oriented economic framework while prioritizing poverty reduction and social spending. This political shift set the conditions for investor confidence and for later reforms that would manage copper volatility more carefully.
Chile joined the Asia-Pacific Economic Cooperation (APEC) forum, signaling a strategy of deeper trade integration with Pacific Rim economies. This move supported export-led growth, including copper and related supply chains, by expanding market access and policy cooperation.
An agreement with MERCOSUR entered into force, lowering barriers and improving regional trade links. It helped diversify Chile’s export destinations and strengthened the policy direction toward open trade alongside Chile’s copper-centered export base.
The Canada–Chile Free Trade Agreement took effect, one of Chile’s early comprehensive FTAs. It reinforced Chile’s “network of agreements” approach to global integration, helping attract investment and deepen trade beyond commodities.
Following spillovers from the Asian financial crisis, Chile’s economy contracted in 1999, showing how global conditions can hit exports and investment. The downturn reinforced the push for stronger institutions to smooth booms and busts tied to copper and the business cycle.
The Chile–Mexico FTA began, further expanding Chile’s preferential access across the Americas. Together with other agreements, it supported a growth model where copper earnings and broader exports financed investment and macroeconomic stability.
Chile moved to a free-floating exchange rate after years of using an exchange-rate band. The shift gave monetary policy more flexibility to respond to shocks—important for a copper-dependent economy where export prices can swing quickly.
Chile began using a structural balance rule that links government spending to long-run revenues, adjusting for the economic cycle and copper price swings. This helped prevent temporary copper booms from turning into permanent spending commitments.
Chile’s Central Bank eliminated the “encaje” rule (an unremunerated reserve requirement on certain capital inflows). This was part of continued financial opening and modernization, while Chile relied more on macro rules (like the fiscal rule) to manage volatility.
Chile signed an Association Agreement with the European Union, covering political cooperation and economic ties including trade. The agreement broadened Chile’s access to a major high-income market, supporting export growth beyond copper.
Chile concluded an FTA with South Korea, reflecting an outward-looking strategy focused on Asia-Pacific markets. This helped Chile’s exporters and reinforced the policy approach of using FTAs to support long-run growth alongside copper earnings.
The U.S.–Chile FTA took effect, reducing tariffs and setting rules for services, investment, and other areas. It strengthened Chile’s trade integration with a major partner and fit the broader reform pattern of openness, stable macro policy, and export competitiveness.
Chile published Law 20.026, establishing a specific tax on mining activities (commonly referred to as a mining royalty). The policy aimed to increase public revenue from the copper boom while keeping a predictable framework for investment.
Chile passed Law 20,128 on fiscal responsibility, reinforcing the structural balance approach and creating a framework for sovereign wealth funds. These steps were designed to save part of copper-related windfalls and reduce vulnerability to commodity price drops.
The Chile–China Free Trade Agreement entered into force, connecting Chile more closely to rapidly growing Chinese demand for commodities, especially copper. This deepened the “copper-led” aspect of growth while also expanding opportunities for other exports.
Chile created the Pension Reserve Fund to help finance future pension obligations, including solidarity benefits. Channeling part of fiscal surpluses into reserves tied the copper-era fiscal gains to long-term social commitments.
The OECD invited Chile to start accession discussions, recognizing its institutional reforms and policy stability. The process pushed further alignment with OECD standards in areas such as governance, competition, and public policy quality.
Law 20.255 created a solidarity pillar to expand coverage and support people with low or no pension savings. The reform used Chile’s stronger fiscal position—helped by copper-related revenues and fiscal rules—to address social gaps in the earlier pension model.
Chile signed its OECD Accession Agreement, marking the final step before membership took effect. This capped two decades of reforms aimed at combining open markets with stronger institutions for fiscal discipline, financial stability, and social policy.
Chile's Copper-Led Growth and Economic Reforms (1990–2010)