Chilean saltpeter mining experience, not technocratic expertise, may explain its effective macroeconomic management of resource wealth

Why is Chile an exception to the rule among non-Western countries, whose macroeconomic management of resource wealth enables natural resources-based growth without high inflation or Dutch Disease?

Chile is commonly held up as a model for other countries which may exploit volumes of resource wealth which are relatively large compared to the size of the economy. Often, resource wealth is managed poorly, and in particular it causes either high inflation (which erodes buying power of citizens and firms) and/or an increase in the exchange rate (which makes the rest of the economy uncompetitive and thus reduces long-term growth).

This high quality macroeconomic management in Chile is often presented as reflecting some sort of technical acumen, or possibly high quality governance including entrenched independence of macroeconomic managers (who have a mandate), from political interference. Specifically, Chile sequesters most resource wealth into a special fund which it draws from in a predictable manner, preventing inflation and excessive exchange rate appreciation.

Without reducing the value of the Chilean example in effective macroeconomic management of financial proceeds from significant resource wealth – numerous African countries are routinely encouraged to pay attention to the Chilean example -, the following may be interesting to note: exploitation of major saltpeter deposits in the early 1900s caused so much inflation, that real wages of workers declined over the 2-generation period of time between 1900 and 1938 (Mathus, 2012).

Chilean technocrats of the 1980s and 1990s were not, by some special genius or technical expertise (for example related to capitalist views compared to neighbours, or former dictatorial leadership), introduced to the notion that resource wealth must be managed effectively in order for there to be actual gains in the long run. The country had already had its own historical experience of declining actual wellbeing as a direct result of significant natural resource exploitation in an absence of effective macroeconomic management.

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