A group of economists later known as the “Chicago Boys” prepared a detailed economic program often called El Ladrillo (“The Brick”). Completed shortly before the coup, it was later used as a key reference for policies emphasizing price liberalization, trade opening, and reducing the state’s direct role in the economy. It helped provide an organized roadmap for the regime’s neoliberal reforms.
On September 11, 1973, Chile’s armed forces overthrew President Salvador Allende and installed a military junta led by Augusto Pinochet. The new regime soon dissolved Congress and ruled by decree, creating the political conditions for a major shift toward market-oriented (“neoliberal”) economic policy. This change set the stage for rapid reforms designed and implemented with limited democratic oversight.
In July 1974, the junta issued Decree Law 600 to create a new framework for direct foreign investment. The statute aimed to attract international capital by clarifying rules and conditions for investors. This move supported Chile’s broader shift toward an export- and market-oriented growth strategy.
By 1975, Pinochet increasingly relied on Chicago-trained economists to tackle inflation and restructure the economy. Their approach favored sharp cuts in public spending, deregulation, and reduced protection for domestic industry. This staffing shift mattered because it made neoliberal policy the regime’s central economic direction rather than one option among many.
Through the late 1970s, Chile dismantled many non-tariff barriers and moved toward a more uniform tariff structure. By 1979, a low uniform tariff (commonly cited at 10%) became a symbol of the shift away from import-substitution industrialization and toward open trade. This policy change increased exposure to global competition and reshaped incentives across agriculture, manufacturing, and finance.
On July 3, 1979, a package of decree-laws known as the “Labor Plan” was promulgated. It reorganized labor relations rules affecting unions, collective bargaining, and strikes, aligning the labor market more closely with the regime’s market-oriented model. These changes were significant because they altered workers’ bargaining power during a period of privatization and economic restructuring.
A new constitution was approved by referendum on September 11, 1980, during the dictatorship. It established long-term rules for governance and included a scheduled plebiscite mechanism for extending Pinochet’s rule. The constitution also created an institutional framework that would later shape how economic reforms were maintained and how the transition to democracy would occur.
In 1981, Chile replaced much of its public pay-as-you-go pension system with mandatory individual retirement accounts managed by private pension fund administrators (AFPs). This reform was a flagship neoliberal policy because it shifted social protection toward private financial markets and individual contributions. It also helped expand Chile’s domestic capital markets by channeling long-term savings into investment funds.
In 1982, Chile suffered a severe recession as the broader Latin American debt crisis unfolded and domestic vulnerabilities became clear. Reported figures include a GDP fall of about 14.3% and unemployment rising to roughly 23.7%. The crisis became a turning point because it exposed risks in fast deregulation and credit expansion, and it triggered political and policy pressures for adjustment.
By January 1983, the government intervened heavily in the banking system, bailing out multiple banks and closing others. This episode showed that even a market-focused program could require large state action to prevent financial collapse. The banking response also influenced later supervision and crisis-management practices in Chile’s financial sector.
On October 5, 1988, Chile held a national referendum on whether Pinochet should continue as president for an additional term under the 1980 Constitution’s process. The “No” option won (commonly summarized as 56% “No”), opening a negotiated path toward elections and civilian government. This political shift mattered for economic policy because it raised questions about whether the neoliberal model would continue under democracy.
On July 30, 1989, voters approved a package of constitutional amendments negotiated between the regime and much of the opposition. The reforms reduced certain emergency powers and adjusted institutional rules as Chile prepared for civilian rule. This helped shape the transition framework in which key market reforms largely remained in place while political institutions moved toward democracy.
In December 1989, Chile held presidential elections that led to Patricio Aylwin’s victory and a new civilian government. The election outcome marked a clear break from military rule while leaving many economic institutions—such as open trade policies and the AFP pension system—largely intact. This transition set the conditions for how Chile would debate and adjust the neoliberal model in the democratic era.
On March 11, 1990, Pinochet transferred the presidency to the democratically elected government, concluding the dictatorship period often associated with Chile’s main wave of neoliberal reforms. The 1980 Constitution’s transition rules took full effect alongside the return to electoral democracy. The handover is a key endpoint because it closed the reform era under authoritarian rule, even as many policies continued and remained contested afterward.
Chile's neoliberal reforms under Augusto Pinochet (1973-1990)