Chile's Chances as the Next NAFTA Candidate

The country has unfinished business on three important fronts, but its economic successes have been spectacular

IN late September, Congress will vote on giving President Clinton ''fast track'' authority to negotiate Chile's admission to NAFTA. Washington sees the issue largely in domestic terms, but the decision should not be taken without a clear understanding of what is happening in Chile. Though problems remain, the country's successes provide a model for the rest of Latin America. It is a good market and a good NAFTA candidate.

Since the early 1960s, no country in Latin America has undergone a more remarkable transformation than this 2,700-mile-long nation sandwiched between the Andes mountains and the Pacific Ocean. When I was in Chile in 1984, it was struggling to pull itself out of a deep recession. In 1982, its GDP had fallen by an astounding 14 percent. It fell again in 1983, and unemployment rose to 30 percent. During my visit, stores were boarded up and restaurants were empty.

Today, Chile is basking in a sustained economic boom. Over the last 12 years, the economy has grown at an average annual rate of 6 percent, a rate historically unprecedented for Chile and one of the highest in the world during this period. GDP has doubled, and per capita income is approaching $4,000 a year, well above the Latin American average.

Both inflation and unemployment are down, while the Chilean peso is strong. When I lived in Chile in the mid-1960s, the name of the money game was to get out of the local currency (then escudos) into dollars. Today, with a steady trade surplus and foreign investment pouring in, the peso has been stronger than the dollar.

The ongoing economic miracle has physically transformed Santiago, Chile's capital. Construction is everywhere in this safe and orderly city of 5 million - new factories and warehouses on the outskirts; glass office towers downtown, and new houses and high-rise condominiums in the foothills of the Andes. Retail commerce is booming, not only in the once-vacant stores of Providencia, but in the indoor malls that have sprung up throughout Santiago. Restaurants are full, even on weeknights.

Transforming the economy

The way the economic boom happened - under a military regime pursuing free-market economics - is as remarkable as the boom itself . Chile was a country with a democratic history and a tradition of government intervention in the economy. Before the government of Salvador Allende (1970-73) attempted to build socialism, and the Christian Democratic administration of Eduardo Frei (1964-70) enacted agrarian reform and nationalized the copper industry, government intervention was accepted in Chile as the most effective and equitable route to national development.

A military coup on Sept. 11, 1973, not only ended decades of civilian rule, it also reversed Chilean economic tradition. The military government headed by Army commander Augusto Pinochet used its considerable powers to systematically and relentlessly reduce government regulation, privatize public industries, lower trade barriers, and open Chile to foreign investment and competition. The commander transformed Chile from a sluggish, protected economy overly dependent on copper exports into a dynamic exporter of wood products, fruit, seafood, wine, and copper.

General Pinochet's Chile became the pioneer in pursuing the neoliberal development strategy now common throughout Latin America. The dictatorship's economic policies were so popular and successful that when civilian rule finally returned to Chile in 1990, the newly elected government kept them in place. Incumbent President Frei, son of the 1960s Christian Democratic president of the same name, has done the same.

A striking change in outlook and attitudes among Chileans has accompanied the economic and physical transformation of the country. A prominent economist remarked that when he graduated from university, he and his classmates went to work for a government agency. Now his children wouldn't think of public careers: Their generation wants to go into business or start their own companies to make money.

Public opinion surveys show that Chileans from all walks of life are optimistic about the future - their own and their country's - and don't expect government to play much of a role in shaping it. The optimism of 1995 contrasts sharply with the pessimism and shame I found in 1984. On that visit, a Chilean academic confessed that she didn't travel abroad because she felt embarrassed to be Chilean.

Chile's remarkable economic performance is a compelling reason for putting Chile at the head of the line for entering an expanded NAFTA. But this is not the full story. Chile has unfinished business on three important fronts.

The first is poverty. In spite of a decade of sustained growth and more equitable income distribution than elsewhere in Latin America, nearly one-third of Chile's 14 million people live below the poverty line. Frei and his predecessor have diverted more resources toward reducing poverty, but there is much to do.

The second unresolved issue is the environment. Santiago's air is among the most polluted in the world. Chile's export-oriented development strategy is heavily dependent on natural resources and not sustainable at current rates of exploitation. The country and its foreign partners have yet to factor environmental protection and resource conservation into their decisionmaking.

NAFTA will make an important contribution to Chile and the rest of Latin America if admission is structured to reward Chile for becoming a model in the hemisphere for reducing poverty and protecting the environment.

Military legacy

The third item of unfinished business is bringing the curtain down on the military dictatorship. The legacy of this most painful period in Chile's history casts a disturbing shadow over the country and its remarkable achievements.

The Armed Forces have yet to hand over full control of government to elected civilian authorities. The 79-year-old Pinochet will remain commander-in-chief of the Army for two years and a thorn in the side of Frei. The 1980 Constitution, enacted during the dictatorship, packs Congress and the courts with supporters of the military and prevents the president from retiring senior officers.

Then there is the vexing issue of how to deal with the human rights crimes committed during the dictatorship. Estimates are that more than 2,000 Chileans disappeared and died while under military jurisdiction; hundreds of thousands were tortured and exiled. The armed forces have fiercely resisted efforts to investigate these crimes.

In a direct challenge to civilian authority, the former head of military intelligence, who was recently convicted of the 1976 assassination of Allende's foreign minister, has refused to report to prison to begin serving his seven-year sentence.

Retired military officers publicly demonstrated solidarity with the convicted general, and during my visit in August, Pinochet issued thinly veiled threats if human rights investigations were not stopped.

Chilean friends insist that the Armed Forces will not risk derailing the economic miracle, thrusting Chile back into the role of an international pariah. The United States and its NAFTA partners ought to make it clear that this is exactly what will happen if the armed forces insist on keeping themselves above the law and preventing the return to full democratic government. The first casualty of such behavior should be membership in NAFTA.