Chile: Political and Economic Conditions and
U.S. Relations

Peter J. Meyer
Analyst in Latin American Affairs
June 3, 2009
Congressional Research Service
7-5700
www.crs.gov
R40126
CRS Report for Congress
P
repared for Members and Committees of Congress

Chile: Political and Economic Conditions and U.S. Relations

Summary
Following a violent coup against democratically elected Marxist President Salvador Allende in
1973, Chile experienced 17 years of military rule under General Augusto Pinochet before
reestablishing its elected civilian democracy in 1990. A center-left coalition of parties known as
the Concertación has governed Chile for the nearly two decades since the end of the dictatorship.
The coalition has enacted a number of constitutional changes to strengthen civilian control of the
military and to undertake the prosecution of those alleged to be responsible for human rights
violations during the Pinochet-era. Chile has made significant economic progress under the
Concertación’s free market economic policies and moderate social programs, which have
produced notable economic growth and considerable reductions in poverty.
Current President Michele Bachelet has faced a number of challenges since her 2006 election.
Widespread demonstrations over education, increased militancy by indigenous groups, and
opposition control of the legislature have hindered President Bachelet’s ability to govern. The
global financial crisis is President Bachelet’s latest challenge, though the government’s timely
decision to save recent fiscal surpluses has allowed Chile to pursue counter-cyclical policies and
minimize the effects of the economic downturn. The government will likely spend much of 2009
coping with the effects of the financial crisis while political parties prepare for the December
presidential and legislative elections.
Chile has enjoyed close relations with the United States since its transition back to democracy.
Both countries have emphasized similar priorities in the region, designed to strengthen
democracy, improve human rights, and advance free trade. Chile and the United States have also
maintained strong commercial ties, which have become more extensive since the bilateral free
trade agreement between them entered into force in 2004. Additionally, U.S. officials have
expressed appreciation for Chile’s leadership and moderating influence in a region increasingly
characterized by political unrest and anti-American populism.
This report—which will be updated as events warrant—provides a brief historical background of
Chile, examines recent political and economic developments, and addresses issues in U.S.-
Chilean relations.

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Chile: Political and Economic Conditions and U.S. Relations

Contents
Political and Economic Background............................................................................................ 1
Allende Era........................................................................................................................... 1
Pinochet Era.......................................................................................................................... 1
Return to Democracy ............................................................................................................ 2
Recent Political and Economic Developments ............................................................................. 3
2005 Presidential and Legislative Elections ........................................................................... 3
Loss of Concertación Control over Legislature ...................................................................... 3
2008 Municipal Elections...................................................................................................... 4
2009 Presidential and Legislative Elections ........................................................................... 4
Education Demonstrations..................................................................................................... 6
Mapuche Activism ................................................................................................................ 6
Human Rights ....................................................................................................................... 7
Energy Challenges ................................................................................................................ 8
Global Financial Crisis.......................................................................................................... 9
Chile-U.S. Relations ................................................................................................................... 9
U.S. Assistance ................................................................................................................... 10
Free Trade Agreement ......................................................................................................... 10
Regional Leadership ........................................................................................................... 10
Narcotics and Human Trafficking........................................................................................ 11

Figures
Figure 1. Map of Chile .............................................................................................................. 12

Tables
Table 1. Chilean Political Acronyms.......................................................................................... 13

Contacts
Author Contact Information ...................................................................................................... 13

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Chile: Political and Economic Conditions and U.S. Relations

Political and Economic Background
Allende Era
Chile declared independence from Spain in 1810, but did not achieve full independence until
1818. By 1932, Chile had established a mass electoral democracy, which endured until 1973.
During much of this period, Chile was governed by presidents who pursued import-substitution
industrialization (ISI), the expansion of the welfare state, and other statist economic policies.
These policies were expanded following the election of Eduardo Frei of the Christian Democratic
Party (PDC) in 1964. Frei’s government took majority ownership of the copper mines,
redistributed land, and improved access to education. Despite these actions, some Chileans felt
more radical policies were needed. In 1970, Salvador Allende, a Socialist and the leader of the
Popular Unity coalition, was elected president. Allende accelerated and furthered the changes of
the previous administration by fully nationalizing firms, expanding land reform, and generally
socializing the economy. While Allende’s supporters pushed him to move more quickly, the
political center, represented by the PDC, joined with the parties of the right to block Popular
Unity initiatives in the legislature. This ideological difference prevented the Chilean government
from addressing the faltering economy and served to further radicalize supporters on both ends of
Chile’s already polarized society. When the situation continued to deteriorate following the
indecisive 1973 legislative elections, the military intervened.1
Pinochet Era
On September 11, 1973, the Chilean military, under the control of General Augusto Pinochet,
deposed the Allende government in a violent coup and quickly consolidated control of the
country. The military junta closed Congress, censored the media, declared political parties in
recess, and regarded the organized left as an internal enemy of the state. Within the first few
months of military rule, over 1,200 people in Chile were killed or disappeared for political
reasons, nearly 20,000 were imprisoned, and many of them were tortured. By the end of the
dictatorship in 1990, the number of killed or disappeared had risen to at least 2,279 and the
number of imprisoned and tortured is said to have exceeded 30,000.2 General Pinochet emerged
as the figurehead of the junta soon after the coup and won a tightly controlled referendum to
institutionalize his regime in 1978. Pinochet reversed decades of statist economic policies by
rapidly implementing a series of changes that liberalized trade and investment, privatized firms,
and dismantled the welfare state. Pinochet won another tightly controlled referendum in 1980,
which approved the Constitution that continues to govern Chile today. The new constitution
called for a plebiscite to take place in 1988 in which Chileans would have the opportunity to
reelect Pinochet to another 8-year term or reject him in favor of contested elections. Although the
Chilean economy enjoyed a period of rapid economic growth between 1976 and 1981, a banking
crisis from 1981 to 1984 sparked widespread protests.3 Following these initial demonstrations,

1 Chile: A Country Study, ed. Rex A. Hudson, (Washington, D.C.: Library of Congress, 1994).
2 Report of the National Commission for Truth and Reconciliation, February 1991; Report of the National Commission
on Political Imprisonment and Torture, November 2004.
3 For more information on the Chilean financial crisis and its comparisons to the U.S. financial crisis, see CRS Report
RS22961, The U.S. Financial Crisis: Lessons From Chile, by J. F. Hornbeck.
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Chilean civil society groups became more active in criticizing the policies of the Pinochet regime.
At the same time, political parties began to reemerge to challenge the government. In 1988,
several civil society groups and political parties formed a coalition in opposition to Pinochet’s
reelection. In the plebiscite, 55% of the Chilean people voted against another 8-year term for
Pinochet, triggering the election campaign of 1989.4
Return to Democracy
The 1989 elections created the political dynamics that prevail in Chile today. Two major
coalitions of parties were formed to contest the elections. The center-left “Coalition of Parties for
Democracy,” or Concertación, united 17 groups that were opposed to the Pinochet dictatorship.
The major parties in the coalition were the centrist PDC and the center-left Radical Party (PR),
Social Democratic Party (PSD) and Party for Democracy (PPD), which was created by Socialists
in 1987 to circumvent the Pinochet regime’s ban on Marxist parties. The center-right “Democracy
and Progress” coalition included the center-right National Renovation (RN) and the rightist
Independent Democratic Union (UDI). A third coalition, the “Broad Party of the Socialist Left,”
was composed of leftist parties unwilling to participate in the Concertación, including the
Communist Party (PC). Patricio Alwyn, a Christian Democrat and the candidate of the
Concertación, won the presidency with 55% of the vote and the Concertación won majorities in
the Chamber of Deputies and among the elected members of the Senate.5
The Concertación coalition has governed Chile continuously since the transition to democracy
and has undergone few changes. The coalition is now composed of the PDC, the PPD, the
Socialist Party (PS), which officially began contesting elections as a part of the Concertación in
1993, and the Radical Social Democratic Party (PRSD), which was created through a merger of
the PR and PSD in 1994. Eduardo Frei Ruiz-Tagle of the PDC was elected president in 1993,
followed by Ricardo Lagos of the PPD in 1999, and Michelle Bachelet of the PS in 2006.
Concertación governments have pushed through a number of constitutional reforms that
strengthened civilian control over the military, eliminated the institution of unelected senators,
and reduced presidential terms from 6 years to 4. They have been unable to eliminate the
binomial election system, which has historically inflated conservative representation as a result of
two-member districts that require a coalition to win by 2-1 margins in order to secure both seats.6
Although the center-right coalition has never won the presidency, it gained control of both
legislative houses for the first time in 2008. It has undergone a number of name changes, most
recently becoming the “Alliance for Chile,” or Alianza. The leftist coalition that includes the PC
is now called “Together We Can Do More” (JPM), and has never elected a Member of Congress.
All of the Concertación administrations have generally maintained the open economic policies of
the Pinochet regime and promoted export-led development through their pursuit of free trade
agreements and encouragement of new export sectors such as forestry products, salmon, fresh
fruit, wine, and methanol. Chile now has over 50 bilateral or regional trade agreements, more
than any other country, and has established a diverse economy much less reliant on its traditional

4 Alan Angell & Benny Pollack, “The Chilean Elections of 1989 and the Politics of the Transition to Democracy,”
Bulletin of Latin American Research, Volume 9 (1), 1990.
5 Ibid. Prior to a 2005 constitutional reform, former presidents served as “senators-for-life” and nine senators were
designated by the armed forces and other bodies.
6 Peter M. Siavelis, “Electoral System, Coalitional Disintegration, and the Future of Chile’s Concertación,” Latin
American Research Review
, Volume 40 (1), 2005.
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copper exports.7 Concertación administrations have also implemented some redistribution
policies to address poverty and inequality in Chile. Although income distribution remains
virtually unchanged since the dictatorship, economic growth and the social programs of the
Concertación have been successful in reducing poverty. The percentage of Chileans living in
poverty fell from 39% in 1990 to 13.7% in 2006. The World Bank classifies Chile as an upper
middle income developing country based on its 2007 per capita income of $8,350.8 Chile is also
the only country in Latin America and the Caribbean on pace to meet all eight of the United
Nations (UN) Millennium Development Objectives by 2015.9
Recent Political and Economic Developments
2005 Presidential and Legislative Elections
The most recent presidential and legislative elections were held in December 2005. Michelle
Bachelet, the Concertación candidate for president and a member of the PS, won 45.9% of the
first round vote. The Alianza split its vote, with the RN’s Sebastián Piñera taking 25.2% and
Joaquín Lavín of the UDI winning 23.2%. Since no candidate won a majority, a run-off election
was held in January of 2006 in which Bachelet defeated Piñera 53.5% to 46.5%. Bachelet is the
first female president in Chile’s history. The Concertación also won majorities in both legislative
houses, with 65 of the 120 seats in the Chamber of Deputies and 20 of the 38 seats in the
Senate.10 As a result of the 2005 constitutional reform that eliminated the institution of unelected
senators, the Concertación established true majorities in both legislative houses for the first time.
Loss of Concertación Control over Legislature
The Concertación has struggled in the legislature since the 2005 election. A number of corruption
scandals involving missing public funds and falsified election campaign financial reports hit the
coalition in late 2006. These scandals led to the Concertación losing two deputies to corruption
charges, one from the PPD and one from the PS. Soon after, the PPD expelled one of the party’s
founders, Deputy Jorge Schaulsohn, for accusing the Concertación of having a culture of
corruption. This expulsion led to two other high profile members of the party, Deputy Javier
Etcheberry and Senator Fernando Flores, leaving the party and the Concertación. Senator Flores
and Deputy Schaulsohn have since created a new party, Chile Primero.11
In November 2007, President Bachelet requested a new public subsidy for the failing
Transantiago transportation system. Senator Adolfo Zaldívar of the PDC joined with Senator
Flores, and the senators of the Alianza to defeat the proposal. The PDC expelled Senator Zaldívar

7 Central Intelligence Agency, “World Factbook,” September 2008.
8 World Bank, “World Development Indicators Database,” September 2008.
9 The objectives work toward the goals of eradicating extreme hunger and poverty, achieving universal primary
education, promoting gender equality, reducing child mortality, improving maternal health, combating disease,
ensuring environmental stability, and developing a global partnership for development; “Chile: Leading the Millennium
Objectives League,” Latin American Brazil & Southern Cone Report, September 2008.
10 “Chile: Country Report,” Economist Intelligence Unit, January 2006; February 2006.
11 “Chile: Concertación Faces Schism,” Latin News Weekly Report, May 10, 2007.
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from the party for his lack of party discipline on an issue of importance to the ruling coalition,
leading 5 deputies from Zaldivar’s faction of the PDC to leave the party and the Concertacíon.12
After all of the corruption charges, expulsions, and resignations, the Concertación was left with
only 56 of the 120 seats in the Chamber of Deputies and 18 of the 38 seats in the Senate.13 The
Alianza reached an agreement with the unaffiliated members of the Senate to make Senator
Zaldívar the Senate President in 2008 in exchange for making a member of the Alianza the Senate
President in 2009. The Chamber of Deputies decided to allow the Concertación to remain in
control of the Presidency in 2008 but hand control to the Alianza in 2009.14 In March 2009,
Jovino Novoa—a member of the UDI and a controversial figure who served as general sub-
secretary in the Pinochet government from 1979 to 1982—was elected president of the Senate
and Rodrigo Alvarez, also of the UDI, was elected president of the Chamber of Deputies. This is
the first time that the Alianza has had control of both houses since the transition to democracy.
2008 Municipal Elections
In the municipal elections held on October 26, 2008, Chileans overwhelmingly voted for a change
of direction, with more than half of the country’s 345 mayors being replaced. For the first time,
the Concertación split into two smaller coalitions to contest council seats, the Democratic
Concertación, composed of the PDC and PS, and the Progressive Concertación, consisting of the
PPD and the PRSD. The four parties contested mayoral races as a single coalition. The Alianza,
JPM, and “For a Clean Chile”—a new coalition that included Chile First, the Regional Party of
Independents (PRI), and the Ecological Party—also took part in the elections.
Although the Concertación won more council and mayoral seats than the Alianza, the Alianza
won a larger share of the national vote than the Concertación for the first time. The Alianza won
40.5% of the vote with 38.4% going to the Concertación, 6.4% to JPM, 4% to For a Clean Chile,
and 10% to independents. When considering only votes for council seats, the Democratic
Concertación took 27.9% of the national vote and the Progressive Concertación took 17.3%.15
2009 Presidential and Legislative Elections
Presidential and legislative elections will take place on December 13, 2009. Since presidents are
ineligible to serve consecutive terms in Chile, President Bachelet will not be running for
reelection. Half of the seats in the Senate and the entire Chamber of Deputies will also be up for
election. Some analysts believe the 2008 municipal election results suggest that the Alianza is in a
strong position while the Concertación is weaker than it has been at any point since the return to
democracy.16 With Pinochet gone, democracy consolidated, and human rights violations being

12 “Chile: DC Crisis Sets Scene for 2009 Contest,” Latin American Brazil & Southern Cone Report, December 2007.
13 “Defections Leave Chile’s Ruling Coalition in Precarious Situation,” Latin American Brazil & Southern Cone
Report
, January 2008.
14 “Chile: Zaldívar Assumes Presidency of Senate,” Latin News Weekly Report, March 19, 2008.
15 “Chileans Vote for Change,” Latin News Daily, October 27, 2008.
16 Benjamin Witte, “Chile: Municipal Elections Show Governing Concertación Suffering Signs of Wear and Tear,”
Latin America Data Base NotiSur, November 21, 2008; “Conservatives Boost Presidential Hopes,” Latin America
Monitor Southern Cone,
December 2008; Romain Le Cour Grandmaison “Chile: A Fading Concertación on the Road
to Losing the Presidency,” Council on Hemispheric Affairs, January 29, 2009.
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prosecuted, a number of observers—both within and outside the Concertación—believe there is
no longer a common purpose holding the coalition together.17 Others contend that the Chilean left
may well unite behind the Concertación presidential candidate in the event of a second round
runoff and that the coalition’s prospects for maintaining power are improving as a result of the
public’s approval of President Bachelet’s handling of the economic crisis.18
A number of analysts consider Sebastián Piñera, a wealthy businessman and the 2005 candidate
of the center-right RN, to be the front-runner for the election.19 Piñera has sought to broaden his
political support by creating the “Coalition for Change,” which includes several smaller parties,
such as Chile Primero, the Christian Humanist Movement, and the Force of the North, in addition
to the parties of the Alianza (RN and UDI). He has pledged to generally continue the economic
policies of the Concertación while improving education and the efficiency of the state. While
most polls continue to show him in the lead, he has drawn considerable criticism as a result of his
failure to place all of his financial investments in a blind trust.20
Observers had expected that President Eduardo Frei (1994-2000), a member of the centrist PDC
and the presidential candidate of the ruling Concertación, would be Piñera’s main opposition. In
April 2009, Frei—who had been endorsed by the PDC, PPD, and PS—defeated Senator José
Antonio Gómez of the center-left PRSD 64.6% to 35.4% in the first of nine scheduled
Concertación primaries. Since he won by more than 20%, Frei was given the Concertación
nomination and was able forgo the rest of the primaries.21 Frei has sought to capitalize on strong
public support for President Bachelet’s handling of the economic crisis and contrast himself with
Piñera by emphasizing his belief that the state should play a major role in addressing the
downturn. He also named a youthful campaign team in hopes of deflecting charges that he
represents the political establishment.
Frei and Piñera will face a number of other presidential candidates, all of whom are dissident
members of the Concertación. Senator Adolfo Zaldívar—formerly of the PDC—is the candidate
of the centrist PRI, Senator Jorge Arrate—formerly of the PS—is the candidate of the leftist JPM,
Senator Alejandro Navarro—formerly of the PS—will be the candidate of the leftist Progressive
Pole of the Left, and Deputy Marco Enríquez-Ominami of the PS is running as an independent.
As previously noted, Zaldivar was expelled from the PDC for his lack of party unity. Arrate and
Navarro have criticized the PS for abandoning its principles and advocating centrist policies.
Enríquez-Ominami decided to run after the PS refused to hold a presidential primary.
While Zaldivar, Arrate, and Navarro are all polling in the low single digits, support for Enríquez-
Ominami has surged, stunning the Chilean political scene. A June 2009 poll found that Enríquez-
Ominami had the support of 26% of Chileans, placing him behind Piñera at 35%, but ahead of
Frei at 24%.22 Enríquez-Ominami is the 35-year-old son of leftwing guerilla Miguel Enríquez—
who founded the Movement of the Revolutionary Left and was killed fighting against the

17 Jack Chang, “Chile’s Ruling Coalition Faces Struggles,” McClatchy News Service, July 17, 2008.
18 “Concertación Courts Communists,” Latin American Weekly Report, February 5, 2009; “Bachelet Rings the
Changes,” Latin American Weekly Report, March 19, 2009.
19 “Chile: Piñera Front-Runner in December Elections,” Oxford Analytica, June 2, 2009.
20 Ibid.
21 “Chile: Frei Seals Victory and Squares Up to Piñera,” Latin American Weekly Report, April 8, 2009.
22 The same poll gave Zaldívar 2%, Arrate 1.2% and Navarro 0.5%. “Supera Enríquez-Ominami a Candidato
Presidencial Oficialista en Chile,” Agencia Mexicana de Noticias, June 2, 2009.
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Pinochet regime—and the step-son of Carlos Ominami, a PS senator. He claims to represent a
younger generation of Chileans that are tired of traditional politicians.23 While he is generally
seen as a leftist—he opposes the Hidroaysén hydroelectric project on environmental grounds,
wants to legalize abortion, and would boost education and health spending—Enríquez-Ominami
has suggested cutting the top personal income tax rate and partially privatizing state companies.
In order to stand as an independent candidate, Enríquez-Ominami will need to resign from the PS
and collect 36,037 signatures from non-affiliated voters by July 12, 2009.24 If no presidential
candidate receives an outright majority, the top two candidates will proceed to a runoff election.
Education Demonstrations
Since the transition to democracy, many Chileans have called on the government to address
inequality in the education system that activists contend is a result of Pinochet-era privatization
reforms. Despite successive Concertación governments’ lack of action, students had high hopes
following Bachelet’s election since she had based her campaign around themes of social justice.
When President Bachelet neglected to even mention education during a state of the nation speech
in May 2006, Chilean students organized the largest social demonstrations in the country since
the return to democracy. With nearly 75% of the public backing them, students filled the streets,
took over schools, and organized rallies that drew as many as 800,000 people.25 The resulting
street violence and near complete shut down of Chile’s education system forced President
Bachelet to shuffle her cabinet, replacing the education, economy, and interior ministers.
President Bachelet also increased education spending and created a commission to consider
education reform. The Administration eventually put forward the General Education Law (LGE),
which was designed to better regulate the current system. Student groups and teachers unions
have protested the new law, saying it fails to address the privatization of education, which they
contend is the root problem.26
Mapuche Activism
Confrontation with the Mapuche population has been a persistent problem for the Bachelet
Administration. The Mapuche are Chile’s largest indigenous group and comprise approximately
4% of the population or 660,000 of Chile’s 16.5 million citizens.27 They are mainly located in the
central and southern regions of Bíobío, Araucanía, Los Ríos, and Los Lagos (See Figure 1 for a
map of Chile). The Mapuche have long sought official recognition as a people, protection of
indigenous rights, and restoration of full ownership of their ancestral lands. Mapuche groups have
pursued these ends through a variety of means. Some pushed for the ratification of convention
169 of the International Labour Organization (ILO) on indigenous rights, which President
Bachelet promulgated in September 2008.28 Others, such as the Arauco-Malleco Coordinating
Committee (CAM), have pursued more militant actions, occupying ancestral Mapuche lands and

23 “People Profile: Marco Antonio Enríquez-Ominami, Chile,” Latin News Daily, May 12, 2009.
24 “Chile’s Enríquez-Ominami Surges Past Frei,” Latin News Daily, June 3, 2009.
25 Monte Reel, “Chile’s Student Activists: A Course in Democracy,” Washington Post, November 25, 2006.
26 Andrea Arango, “The Failings of Chile’s Education System: Institutionalized Inequality and a Preference for the
Affluent,” Council on Hemispheric Affairs, July 30, 2008.
27 Central Intelligence Agency, “World Factbook,” September 2008.
28 “Bachelet Makes Gesture to Chile’s Indigenous Groups,” Latin News Weekly Report, September 25, 2008.
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burning vehicles, machinery, and buildings on them, frequently targeting logging companies.
Despite promises from successive Concertación governments to rectify Chile’s relationship with
its indigenous groups, Mapuche groups maintain that action has been slow, both in terms of the
transfer of lands to Mapuche communities and land titling.
CAM has increased its militant actions in recent years, because of its dissatisfaction with the
government’s efforts on indigenous issues. As a result, the Bachelet Administration has captured
and imprisoned many of CAM’s leaders. Nonetheless, conservative politicians and media have
accused the government of inaction and alleged connections between the Mapuche and foreign
terrorist organizations like the Revolutionary Armed Forces of Colombia (FARC) and Basque
Homeland and Freedom (ETA) in Spain. The government insists that there is no credible evidence
of operational links between these groups, and CAM denies having any foreign ties. Human
rights groups have also criticized the Bachelet Administration, accusing Chile’s carabineros
(police force) of arbitrary arrests, torture, and beatings of Mapuche people and condemning the
government’s use of Pinochet-era anti-terrorism laws to prosecute Mapuche activists.29 In April
2009, 130 police officers raided three Mapuche communities, seizing documents and arresting 11
members of CAM in connection to an October 2008 attack on a public prosecutor. While CAM
denounced the raid as “extremely violent and abusive,” the Chilean government maintained that
the operation had been conducted “impeccably.”30
Human Rights
In recent years, Chile has continued to address human rights violations from the Pinochet era. In
September 2005, the Chilean Supreme Court upheld a court of appeals ruling that stripped
Pinochet of immunity and allowed him to stand trial for his role in the killing of 119 political
dissidents who were found dead in Argentina in 1975. In January 2006, an appeals court again
stripped Pinochet of his immunity from prosecution for his role in the killing of two of Allende’s
bodyguards in 1973. Pinochet was stripped of immunity a third time in September 2006 by
Chile’s Supreme Court so that he could stand trial for the abuses at the Villa Grimaldi detention
center, an infamous center for torture whose victims included President Bachelet. In December
2006, after having several charges dropped because of his failing health (but still under
indictment in two human rights cases and on tax evasion), Pinochet died of complications from a
heart attack.31 The Chilean government is currently trying to recover $26 million in public funds
that Pinochet allegedly deposited in U.S. banks.32
Other dictatorship-era officials have also been prosecuted for human rights violations. Former
intelligence chief, retired General Manuel Contreras, was sentenced to two life prison terms in
July 2008 for organizing the 1974 double assassination of General Carlos Prats and his wife in
Buenos Aires, Argentina. Contreras was already imprisoned as a result of convictions stemming
from other dictatorship-era crimes, including the 1976 assassination of former Ambassador to the

29 “Chile: Bachelet Reacts to Challenge By Radical Activists,” Latin News Security & Strategic Review, January 2008;
Benjamin Witte, “Chile Dusts Off Pinochet-Era Terror Law,” Latin America Data Base NotiSur, March 13, 2009.
30 “Chile Cracks Down on Violent Mapuche Militants,” Latin News Daily, April 22, 2009.
31 Jack Epstein, “Augusto Pinochet: 1915-2006/Chilean Leader’s Regime Left Thousands of ‘Disappeared’,” San
Francisco Chronicle
, December 11, 2006.
32 “Negociaría Estado Chileno Con Bancos Que Ocultaron Dinero de Pinochet,” Agencia Mexicana de Noticias, March
15, 2009.
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United States, Orlando Letelier and his American associate, Ronni Moffitt, in Washington, D.C.33
Sergio Arellano Stark, the commander of the so-called “Caravan of Death” that executed 80
political prisoners of the dictatorship shortly after the coup in 1973, was sentenced to 6 years in
prison in October 2008.34 In May 2009, two Chileans were arrested in connection to the 1973
torture and execution of Chilean singer-songwriter Victor Jara.35 In all, over 100 former members
of the Chilean military have been convicted for their dictatorship-era crimes.36 Family members
of the disappeared and other human rights advocates continue to push for greater transparency
concerning the actions of the dictatorship and for those responsible to be brought to justice.
Energy Challenges
As a result of limited domestic energy resources and increasing demand due to its strong
economic growth, Chile has become heavily dependent upon foreign energy imports. Over the
past decade, Chilean demand for electricity grew at an average rate of 6% per year.37 In order to
satisfy this demand, primary energy imports increased from 45% to 67% of the total supply
between 1990 and 2006. Chile now imports about 99% of its crude oil, 72% of its natural gas, and
92% of its coal.38 While Chile has tried to secure sufficient energy resources through its open
economic policies, its supply has been threatened by a number of regional developments. In 2004,
Argentina cut its natural gas exports to Chile as a result of a domestic energy crisis. Since then,
Argentine natural gas exports to Chile have fluctuated considerably, nearly leading to electricity
rationing in early 2008.39
These export cutbacks have adversely impacted Chilean economic activity and have forced Chile
to reconsider its energy options. Chile is now focusing on diversifying both its energy suppliers
and supplies. The Chilean government and private firms began developing liquefied natural gas
(LNG) terminals in 2006. The first LNG terminal is expected to start operations in central Chile
in July 2009. Given the feasibility of establishing power plants close to ports and the diversity of
countries that export coal, Chile has begun to increase its reliance on coal-fired power plants.
These plants are expected to produce a quarter of all Chilean electricity by 2020, up from 15% at
present. Domestic renewable sources of energy are also receiving increased attention. Chile has
begun construction on a number of new hydroelectric plants, is studying geothermal and tidal
energy potential, and is installing wind farms. A 2008 law requires energy providers to generate
5% of their electricity from renewable sources by 2010 and 10% by 2024.40

33 Helen Hughes & Jack Chang, “Ex-Chilean Intelligence Chief Gets 2 Life Sentences,” Miami Herald, July 1, 2008.
34 “Condenan a General Chileno por Crímenes de ‘Caravana de la Muerte’,” Agencia Mexicana de Noticias, October
15, 2008.
35 “Chile Arrests 2 in Murder of Singer Victor Jara,” EFE News Service, May 26, 2009.
36 “Familiares de Víctimas de Pinochet Mantienen Viva Demanda de Justicicia,” Agencia Mexicana de Noticias,
September 5, 2008.
37 “Chile: Medium-Term Electricity Supply Looks Secure,” Oxford Analytica, April 23, 2009.
38 Oscar Landerretche, “Chile’s Choices: Maintaining Growth and Securing Supply,” in Energy and Development in
South America: Conflict and Cooperation
, eds. Cynthia J. Arnson et al., 27-34, (Washington, D.C.: Woodrow Wilson
International Center for Scholars, 2008).
39 “Chile: Medium-Term Electricity Supply Looks Secure,” Oxford Analytica, April 23, 2009.
40 Ibid.
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Global Financial Crisis
The global financial crisis and economic slowdown have taken a toll on Chile’s economy. Real
gross domestic product (GDP) growth slowed from 5.1% in 2007 to an estimated 3.2% in 2008.41
The Santiago Stock Exchange (IPSA), like those in many emerging markets, suffered
considerable losses in the second half of 2008. Additionally, the price of copper—which provides
40% of the government’s revenues—fell below $2 per pound for the first time in three years in
October 2008.42 As a result, government earnings from copper fell by 23% in 2008 and total
government revenue fell 0.6% for the year.43 The trend continued into the first quarter of 2009 as
Chile experienced its first economic contraction in 10 years. GDP fell by 2.1% and
unemployment reached 9.2%.44
Nonetheless, Chile’s economy has begun to show signs of recovery. The Chilean government
invested $20.3 billion (12% of GDP) from fiscal surpluses generated by high copper prices in
recent years in two sovereign wealth funds. These funds have allowed the government to pursue
counter-cyclical policies and inject liquidity in the financial sector. In January 2009, President
Bachelet announced a $4 billion (2.8% of GDP) economic stimulus package. The plan includes
temporary tax cuts for small businesses, increased benefits for poor Chileans, $700 million for
infrastructure projects, and $1 billion for Codelco, the state-owned copper company. The
independent Chilean Central Bank has also cut the benchmark interest rate to a record low of
1.25%.45 As of May 2009, the IPSA index was up 25% on the year and had recovered to its May
2008 levels. International copper prices have also rebounded, increasing 56% on the year and
once again exceeding $2 per pound. The Chilean Central Bank, however, is forecasting an
economic contraction of 0.75% for 2009.46
Chile-U.S. Relations
The United States and Chile have enjoyed close relations since Chile’s transition back to
democracy. The countries maintain strong commercial ties and share common commitments to
democracy, human rights, and free trade. Both countries have demonstrated these commitments
by supporting the implementation of the Inter-American Democratic Charter, signing a bilateral
free trade agreement, and supporting the proposed Free Trade Area of the Americas (FTAA).47
The Obama Administration has described Chile as one the United States’ closest allies in the
region and Vice President Biden visited the country in March 2009 during his first trip to Latin
America.48

41 “Chile: Country Report,” Economist Intelligence Unit, May 2009.
42 “Ministro Chileno: Presupuesto Fiscal Sólido Pese a Baja Cobre,” Dow Jones Newswires, October 22, 2008.
43 “Country Report: Chile,” Economist Intelligence Unit, March 2009.
44 “Chile: GDP May Contract for First Time in Decade,” Oxford Analytica, May 18, 2009; “Chile: Finance outlook,”
Economist Intelligence Unit, June 1, 2009.
45 “Chile’s Economy: Stimulating,” The Economist, February 19, 2009; “Chile: Finance outlook,” Economist
Intelligence Unit
, June 1, 2009.
46 “Chile: Finance Outlook,” Economist Intelligence Unit, June 1, 2009.
47 For more information on the FTAA, see: CRS Report RS20864, A Free Trade Area of the Americas: Major Policy
Issues and Status of Negotiations
, by J. F. Hornbeck.
48 Eva Vergara, “EEUU Vuelve a Escuchar a Latinoamérica, Dice Biden en Chile,” Associated Press, March 28, 2009.
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U.S. Assistance
In order to promote economic development and prevent the election of a communist government,
the United States provided Chile with extensive assistance during the 1950s and 1960s. President
Kennedy made Chile the centerpiece of his “Alliance for Progress,” providing the country with
$293 million in economic assistance between 1961 and 1963.49 Assistance declined following the
election of Allende and has generally remained low since then, increasing briefly during the early
years of the Pinochet dictatorship and again following the transition to democracy. Chile received
$1.4 million in U.S. assistance in FY2008, is scheduled to receive $1.2 million in FY2009, and
would receive $2.3 million in FY2010, if Congress funds the Administration’s request.50 The
majority of U.S. assistance to Chile is focused on modernizing the Chilean military by improving
its capacity to act as a peacekeeping force and its ability to conduct joint operations with the U.S.
military. U.S. assistance also goes to programs that deter weapons of mass destruction, improve
civilian control over the military, and upgrade military equipment. The 110th Congress passed the
Naval Vessel Transfer Act of 2008 (H.R. 7177, P.L. 110-429, signed into law on October 15,
2008), which contains a provision that authorizes the President to transfer by grant a Kaiser class
oiler, Andrew J. Higgins (AO-190), to the government of Chile.
Free Trade Agreement
The United States and Chile signed a bilateral free trade agreement (FTA) on June 6, 2003.
Following the House and Senate passage of the U.S.-Chile Free Trade Implementation Act,
President Bush signed the bill into law on September 3, 2003 (P.L. 108-77). The FTA established
immediate duty-free treatment for 85% of bilateral trade in consumer and industrial products,
increasing market access for both countries.51 Since the agreement went into force on January 1,
2004, bilateral trade between the United States and Chile has more than tripled, totaling $20.3
billion in 2008. U.S. imports from Chile grew from $3.7 billion in 2003 to $8.1 billion in 2008
while U.S. exports to Chile grew from $2.7 billion in 2003 to $12.1 billion in 2008. The United
States was Chile’s top source of imports and the second largest destination for Chile’s exports
while Chile was the 25th largest export market for U.S. goods in 2008.52
Regional Leadership
Chile has been an active participant and frequent leader in multilateral engagement at both the
regional and global levels. Chile has joined with the United States as part of the multinational
peacekeeping force in Haiti since 2004, first as a part of the Multinational Interim Force-Haiti
(MIFH) and subsequently as a part of the UN Stabilization Mission in Haiti (MINUSTAH). Chile
has committed more human and material resources to MINUSTAH than it has to any previous
peacekeeping mission and the country’s early presence in the MIFH encouraged a number of
other countries in the region to play a role in MINUSTAH.53 The United States and Chile also

49 This is the equivalent of $1.6 billion in constant 2006 dollars; U.S. Overseas Loans and Grants (Greenbook) 2006.
50 U.S. Department of State “FY2010 Congressional Budget Justification for Foreign Operations,” May 29, 2009.
51 For more information on the U.S.-Chile Free Trade Agreement, see: CRS Report RL31144, The U.S.-Chile Free
Trade Agreement: Economic and Trade Policy Issues
, by J. F. Hornbeck.
52 U.S. Department of Commerce statistics, as presented by Global Trade Atlas, 2009.
53 Enzo Di Nocera García & Ricardo Benavente Cresta, “Chile: Responding to a Regional Crisis,” in Capacity Building
for Peacekeeping: The Case of Haiti
, eds. John T. Fishel & Andrés Sáenz, 66-90 (Dulles, VA: Potomac Books, 2007).
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worked together as members of the so-called “Group of Friends of Venezuela,” to foster
discussion between President Hugo Chávez and the political opposition.54 Chile has taken on the
role of regional leader in fora that do not involve the United States as well, such as the emergency
summit of the Union of South American Nations (UNASUR) called by President Bachelet in
September 2008 in order to resolve the political turmoil in Bolivia.
Narcotics and Human Trafficking
Although Chile is not a drug producing country, it is increasingly used as a transshipment point
for Andean cocaine destined for Europe and, to a lesser extent, the United States. It is also a
source for precursor chemicals used in the processing of cocaine. The United States provides
support to the Chilean government for anti-narcotics programs focused on police intelligence
capabilities, interagency cooperation, anti-money laundering efforts, and maritime security.
Through September 2008, Chilean officials had seized 1,421 kilograms of cocaine; 3,200
kilograms of cocaine paste; and 7,087 kilograms of marijuana. Chile is providing regional
leadership in counternarcotics as the President of the Inter-American Drug Abuse Control
(CICAD) for 2009.55
Chile is also a source, transit, and destination country for trafficking in persons for commercial
sexual and labor exploitation. The U.S. Department of State’s 2008 Trafficking in Persons (TIP)
Report states that Chile does not fully comply with the minimum standards for the elimination of
trafficking because its statutory framework does not specifically prohibit labor trafficking. Chile
made significant efforts to fully comply with the U.S. standards during the 2007-2008 reporting
period, however, introducing anti-trafficking legislation, opening a significant number of
trafficking investigations, and improving assistance for trafficking victims. As a result, the U.S.
Department of State designated Chile a “Tier 2” country.56

54 Juan Forero, “Friends of Venezuela Are There to Help,” New York Times, January 31, 2003.
55 U.S. Department of State Bureau for International Narcotics and Law Enforcement Affairs, “2009 International
Narcotics Control Strategy Report (INCSR),” February 27, 2009.
56 U.S. Department of State Office to Monitor and Combat Trafficking in Persons, “Trafficking in Persons Report,”
June 2008.
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Chile: Political and Economic Conditions and U.S. Relations

Figure 1. Map of Chile

Source: Map Resources. Adapted by CRS Graphics.
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Table 1. Chilean Political Acronyms
Acronym Political
Organization Description
CAM Arauco-Mal eco
Coordinating
Militant Mapuche organization
Committee
JPM
Together We Can Do More
Leftist coalition of parties
PC
Communist Party
Leftist member party of JPM
PDC
Christian Democratic Party
Centrist member party of the
Concertacióna
PPD
Party for Democracy
Center-left member party of the
Concertación
PR
Radical Party
Center-left member party of the
Concertación at return to democracy
PRI
Regional Party of Independents
Centrist party formed in merger of
two regional parties,
PRSD
Radical Social Democratic Party
Center-left member party of the
Concertación, merger of PR and PSD
PS
Socialist Party
Center-left member party of the
Concertación
PSD
Social Democratic Party
Center-left member party of the
Concertación at return to democracy
RN
National Renovation
Center-right member party of the
Alianzab
UDI
Independent Democratic Union
Rightist member party of the Alianza
Source: Compiled by CRS
Notes:
a. The Concertación is a center-left coalition of parties.
b. The Alianza is a center-right coalition of parties.

Author Contact Information

Peter J. Meyer

Analyst in Latin American Affairs
pmeyer@crs.loc.gov, 7-5474




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