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Progress Has Come at a High Cost

MEXICO may have been the darling of international economic development experts in the early 1990s. But then came Dec. 20, 1994, the advent of Mexico's financial collapse, and suddenly Mexico was no longer the belle of the ball - all eyes shifted to Chile.

Now Chile is touted from Tijuana to Tierra del Fuego - and beyond - as Latin America's economic model.

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Yet while that designation may be justified to a certain extent, some observers caution that the effects of Chile's economic growth on living standards are hardly to be emulated. Still others, even while lauding Chile's progress, emphasize that Chile's experience is based on a specific historical and political context that cannot simply be copied.

''Chile did enormous preliminary work beginning in the 1960s; our experience in moving to a market economy is much older than any other in Latin America,'' says Osvaldo Sunkel, president of CINDE, a development research institute in Santiago.

''People look at Chile now and say, 'We want to be like that,' but they don't look at our history and see what we've done as a process.''

A country's metamorphosis

Chile's transition began in the 1960s, when the idea in vogue was that Chile could become a second California, only with inverted seasons. Organizations such as the Ford Foundation and companies like ITT - which started Fundacion Chile, now an independent technology transfer group and new-company incubator - became heavily involved in the transformation project.

Times were particularly rough during the first decade of the Pinochet military dictatorship ending in the mid-1980s, when unemployment flirted with 20 percent and more than 40 percent of the population fell below the poverty line. Large-scale privatizations wiped out jobs, and deregulation of everything from health and education to labor standards left a large segment of the population without social coverage. With no local political opposition to slow it down, the dictatorship pushed ahead on economic reform as it saw fit.

With economic growth restored, the percentage of the population below the poverty line shrank to 33 percent in 1993, and Mr. Sunkel guesses it may be closer to 25 percent today - about where it was in 1968.

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Paying for prosperity

Yet even that ''progress'' has some economists cautious about seeing Chile as a model.

''Yes, poverty is decreasing, but at what cost?'' asks economist Fernando Leiva. The drop in poverty is largely the result of women bringing a second income into the home and of longer work hours, he says. ''At least 40 percent of wage-earners are working over 48 hours a week,'' he says.

''More jobs are temporary, contract, or in home, with few if any protections. And now more children are expected to get a job as soon as they can, so that brings down education levels.'' By 1992 only 2.5 percent of the population had more than seven years of formal education, a third as many as in Argentina and half the number in Brazil or Mexico.

The government of President Eduardo Frei Ruiz-Tagle recognizes the shortcomings - and dangers - evident in some of the country's social indicators. And he's working to address them. ''What we emphasize now is a strategy of growth with equity,'' says National Budget Director Jose Pablo Arellano.

A major tax reform raised the corporate tax rate from zero to 15 percent. The government hiked the national value-added tax to pay for new and increased services. And social expenditures in the five years ending this year will have increased 50 percent in real terms.

President Frei has also targeted youth skills training and pensions for funding increases this year. And the country is embarking on a program to address extreme poverty by involving the private sector and local ''sweat equity.'' To keep students in school longer, subsidies to the poorest families with school-age children will be increased - if the students stay in school.

Will that be enough to make Chile a Latin American model in more than just macro-economic terms? ''If people look at both our mistakes and our achievements,'' Sunkel says, ''then perhaps we can be considered a model.''

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