Over the last two decades, Chile has developed into a stable emerging economy within a turbulent region. Following the banking and debt crises in the early 1980s, the country experienced sustained high growth from 1984 to 1997. Subsequently the economy slowed down, though registering negative growth only in 1999. Chile has had the highest per capita income growth in Latin America and a sustained catch-up relative to the OECD average since the mid-1980s (Figure 1). Other signs of its resilience include the steady fall in inflation from 30 per cent at the beginning of the 1990s to 3 per cent annually over the period 1999 to 2002. On the fiscal side, the Chilean government is strongly committed to a structural fiscal surplus of 1 per cent of GDP and has one of the lowest public debt to GDP ratio, together with favourable interest rates and maturities for public debt. Chile has gained praise in international financial markets, as reflected by the lowest spreads in Latin America. Two other factors have also strongly contributed to Chile’s resilience: a continued commitment to market-oriented policies and sound institutions...