local inflation was similar to international levels, but the real exchange rate had strongly appreciated, and the foreign debt had duplicated in three years. In this context of severe macroeconomic disequilibriums the economy faced the second oil shock.

# Pragmatic Export-Driven Growth 1982-1989

The second oil shock had three strong manifestations in the Chilean economy. First, capital flows that had reached 18% of GDP in 1981, were reduce to one half of that in 1982, and later one fourth in 1983. Second, the increase in the interest rates made more expensive the service of a recently doubled debt. Finally, the terms of trade were worsened, led by a strong decrease in the international price of copper. As a result, 1982 experienced a negative growth of GDP of 14%, and unemployment rates rose to almost 30%. The regime had to respond to the political turmoil that followed. Tariffs were momentarily raised to 35% and the exchange rate was devaluated in a crawling peg scheme. Imports responded immediately reducing in 1983 to less than one half of their 1981 level. Exports lagged, but started to grow specially after 1986. The economy grew at a fast pace, but most of the initial inertia was just recovery and full utilization of installed capacity. On the other hand, investment kept low like in the previous period, only starting to grow by the end of the regime.

An assessment of the military regime leaves many negative marks. For the whole 19731989 period the economy grew at a disappointing average of 2.6%. Industrial product practically did not grow. In 1989 real wages and minimum wages stood at a level lower than 1970. The "neutral" liberalization approach put the incentives on the export of goods were there was natural comparative advantages, not acquired, thus most of the exports since have been resource intensive. There was a severe worsening in the distribution of income, official consumer surveys for CPI construction reveal that from 1969 to 1987 the richest quintile increased its share of consumption from 44.5% to 54.9%. Also, the fast liberalization, as expected cause firms to be more efficient, that is in 1989 the surviving industrial sector was more efficient, but smaller. On the positive end, a financial sector was developed during the regime, which now has more controls after the 1982 crisis. Also, different exports grew significantly diminishing the historical dependence in the copper exports. While in 1974 non copper exports accounted for only 32.7% of the value of total exports, in 1989 this share was 22.6%. Finally, although the fashion and timing of the trade liberalization is very arguable, it left a country outward looking ready to base it growth in the export sector.

# **Export-Driven Growth and the "Social Debt" 1990** - **1995**

With the return of democracy in 1990, the export-driven growth model did not change. However, the government recognized that during the previous regime there was very little spending in social programs, it recognized a "social debt". The period is characterized by very strong growth, with an average GDP growth of 9.6%. Export not only grew at a similar rate, but were diversified in its components and their destinations. By 1996 non copper exports amounted for 60% of the value of the country's total exports.

The most important reform of the period was agreed with the military regime and it consisted of granting the Central Bank independence from the executive power, thus guaranteeing independent monetary policy. The Bank informs agents by the end of the year its goals for next year's inflation, and it has gained complete credibility by reaching the goal each year, reducing inflation each year. The foreign exchange have been liberalized, but they are overlooked by the Central Bank which has a preestablished "ceiling" and "floor" for the foreign currency trading, that if overpassed will cause the Bank to intervene. Tariffs were further reduced 45