ABSTRACT
Chile has one of the longest histories of democracy in Latin America. Indeed, its democratic tradition was perhaps the thing of which Chileans were most proud, thinking it set them apart from their neighbors who were often plagued by political instability and periods of military rule. This chapter provides a political-economic background, and focuses on the economic crisis of the early 1980s and the protests demanding a return to democracy. As recession hit the advanced industrial countries and interest rates rose, these trends were passed on to Latin America through balance-of-payments problems. From the point of view of the economic team in Chile, any governmental response to the crisis would have been at least as traumatic as the crisis itself because of their near-total commitment to market mechanisms, including an “automatic adjustment” to macroeconomic disequilibria. Although Caceres’ policies would eventually provide a basis for reequilibrating the economy, the costs were extraordinarily high.
