South America's free-trade island in a sea of populism

Auto salesman Carlos Carreño is ecstatic about the free-trade accord reached last week between the United States and Chile.

"It's fabulous," he says. "It'll bring us more jobs and create more possibilities to export our products."

Soda vendor Miguel Vega is equally excited. "We're an underdeveloped nation," he says from behind his pushcart. "This will help us become a developed nation."

This kind of zeal for free-market economics is hardly typical in most corners of Latin America. Embattled Venezuelan President Hugo Chávez calls such change ineffective and suggestive of US imperialism. Leftist presidents are poised to take power in Brazil and Ecuador, and both indicate that wholesale acceptance of such policies could imperil their economic independence. And Argentina is in the midst of an economic crisis that many blame on the "Washington consensus," which includes liberalized trade.

But this new agreement is the latest in a long series of free-market moves by Chile. Beginning 20 years ago, through a string of presidents - even socialists - who have used the economic gains from trade to fund their social agendas, Chile has solidified its status as an island of unfettered neoliberalism in a populist region.

"Chile has always been the beauty queen in terms of neoliberal economic reform," says Jerry Haar, a researcher at the University of Miami's North-South Center, a think tank that studies Western Hemisphere public policy issues.

The accord, the first free-trade pact between the US and a South American nation, will immediately eliminate tariffs on some 85 percent of goods and on most others within four years. That, says Chile's National Chamber of Commerce, could prompt a 30 percent rise in trade, which reached $8.8 billion last year.

Chile has been trying to secure the pact for much of the past decade, which still has to be approved by both country's legislatures. But with free-markets the wish of both President Ricardo Lagos' center-left Concertación coalition and the right-wing Alliance for Chile, the main opposition coalition, analysts expect passage sometime next year by an ample majority.

Chile began promoting open markets during the regime of dictator Augusto Pinochet from 1973 to 1990. Mr. Pinochet deregulated industry, reduced corporate taxes, and cut duties, aiming to create a stable economic environment for foreign investment and increased exports. By the mid-1980s, Chile's GDP had rebounded, in contrast to the runaway inflation under Marxist President Salvador Allende.

Pinochet is still reviled by many stemming from the death or disappearance of some 3,200 dissidents. But even those who don't like the former dictator recognize the positive legacy of his market reforms. "The public at large sees and appreciates the fact that the economy surged starting in the Pinochet years," says Roberto Durán, a political scientist at Santiago's Catholic University. "They had work, inflation came under control."

And all of Pinochet's successors have followed up with market-based reforms of their own, slashing duties, pushing privatization of state-owned entities, and encouraging foreign investment.

The post-Pinochet efforts owe as much to political expediency as anything, says Guillermo Geisse, head of a Santiago think tank that studies business. Continued growth and job creation have kept the reforms popular, and Concertación leaders say the measures create revenues for social programs.

Exports of copper, wood products, fruit, salmon, and other goods boomed through the 1990s, leading to 6.5 percent annual economic growth, far outperforming the region. This year, Chile's economy is expected to grow some 2 percent compared to a 1 percent drop in Latin America overall. By contrast, Mr. Durán says, Chile's relative wealth before Pinochet's reforms was more on par with Andean nations like Bolivia, Colombia, and Ecuador, which are among South America's poorest.

Mexico, through the North American Free Trade Agreement, is the only other Latin American nation that has a free-trade accord with the US. The Bush administration is set to start trade talks with five Central American nations as early as January, seeking the creation of the Free Trade Area of the Americas by 2005.

But Tomás Flores, an analyst at the Liberty and Development Institute, a conservative Santiago think tank, says that weaker free-market attributes elsewhere in Latin America will slow those efforts. For instance, the standard import duty among the member countries of the Mercosur trade bloc - Brazil, Argentina, Uruguay, and Paraguay - is 14 percent versus 7 percent in Chile. Likewise, much of Latin America, lacking the favorable political consensus that Chile has among its right and left wings, is still subject to shifts toward populism and protectionism.

"For many in Latin America, it seems that whenever there's a positive economic cycle, only a few people benefit. But when there's a negative cycle, everybody pays," says University of Chile political scientist Ricardo Israel. "Latin America is essentially a populist region, with Chile being the exception."