ABSTRACT
The Chilean experience during the 1970's offers an example of complete financial market deregulation, implemented simultaneously with the liberalization of foreign trade and domestic commodity markets. This chapter presents the main effects of financial liberalization on the Chilean economy, specifically in the industrial manufacturing sector. Liberalization and modernization of the financial sector was a major policy objective of the Chilean military regime. The results of liberalization reform contradicted the results predicted by the economic model on which it was based. The economic growth which did occur involved a financial deepening which was not associated with growth in the real sector of the economy. The chapter concludes that adequate organization of the domestic financial system and the creation of a beneficial environment for productive investment and savings are essential preconditions for a lasting development process.
