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Shannon O'Neil

Latin America’s New Economic Model May Emerge in Chile

Once the region’s no-frills, free-market poster child, Chile needs more government spending, not less, to sustain its growth trajectory.

The masked man with a plan.

The masked man with a plan.

Photographer: Jonnathan Oyarzun/Getty Images South America

Latin America’s leftist leaders hailed the December election of Gabriel Boric in Chile while investors pulled back, leading the country’s currency and stock market to fall. Yet Boric has the chance to surprise both sides, carving out a different left-leaning political path. Rather than selling the economic populism of Argentina or Brazil or the authoritarian dogma of Venezuela, Cuba or Nicaragua, Boric could create a more progressive country and inclusive welfare state. Shedding Chile’s neoliberal economic model for a social democratic one would put it on the trajectory of other high-income countries, benefiting Chile’s citizens, making growth more stable and sustainable and creating a new paradigm for its neighbors to follow.

Chile has been on the economic rise since its return to democracy in 1989. Three decades of market-friendly neoliberal policies, including privatizing public works, lowering trade barriers and deregulating capital markets, spurred foreign and domestic investment and economic growth. This model boosted per capita incomes from less than $2,300 in 1989 to more than $15,000 today, (and $25,000 when measured by purchasing power parity or PPP), making Chile one of the few Latin American nations to graduate from middle to high income in the World Bank’s rankings.