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Learn about the history, government and economy of Chile.

About 10,000 years ago, migrating Indians settled in fertile valleys and along the coast of what is now Chile. The Incas briefly extended their empire into what is now northern Chile, but the area's barrenness prevented extensive settlement. The first Europeans to arrive in Chile were Diego de Almagro and his band of Spanish conquistadors, who came from Peru seeking gold in 1535. The Spanish encountered hundreds of thousands of Indians from various cultures in the area that modern Chile now occupies. These cultures supported themselves principally through slash-and-burn agriculture and hunting. The conquest of Chile began in earnest in 1540 and was carried out by Pedro de Valdivia, one of Francisco Pizarro's lieutenants, who founded the city of Santiago on February 12, 1541. Although the Spanish did not find the extensive gold and silver they sought, they recognized the agricultural potential of Chile's central valley, and Chile became part of the Viceroyalty of Peru.

The drive for independence from Spain was precipitated by usurpation of the Spanish throne by Napoleon's brother Joseph in 1808. A national junta in the name of Ferdinand--heir to the deposed king--was formed on September 18, 1810. The junta proclaimed Chile an autonomous republic within the Spanish monarchy. A movement for total independence soon won a wide following. Spanish attempts to reimpose arbitrary rule during what was called the "Reconquista" led to a prolonged struggle.

Intermittent warfare continued until 1817, when an army led by Bernardo O'Higgins, Chile's most renowned patriot, and José San Martín, hero of Argentine independence, crossed the Andes into Chile and defeated the royalists. On February 12, 1818, Chile was proclaimed an independent republic under O'Higgins' leadership. The political revolt brought little social change, however, and 19th century Chilean society preserved the essence of the stratified colonial social structure, which was greatly influenced by family politics and the Roman Catholic Church. A strong presidency eventually emerged, but wealthy landowners remained extremely powerful. Toward the end of the 19th century, the government in Santiago consolidated its position in the south by ruthlessly suppressing the Mapuche Indians. In 1881, it signed a treaty with Argentina confirming Chilean sovereignty over the Strait of Magellan. As a result of the War of the Pacific with Peru and Bolivia (1879-83), Chile expanded its territory northward by almost one-third and acquired valuable nitrate deposits, the exploitation of which led to an era of national affluence. Chile established a parliamentary democracy in the late 19th century, but degenerated into a system protecting the interests of the ruling oligarchy. By the 1920s, the emerging middle and working classes were powerful enough to elect a reformist president, whose program was frustrated by a conservative congress. In the 1920s, Marxist groups with strong popular support arose.

Continuing political and economic instability resulted with the rule of the quasidictatorial Gen. Carlos Ibanez (1924-32). When constitutional rule was restored in 1932, a strong middle-class party, the Radicals, emerged. It became the key force in coalition governments for the next 20 years. During the period of Radical Party dominance (1932-52), the state increased its role in the economy.

In 1970, Senator Salvador Allende, a Marxist and member of Chile's Socialist Party, who headed the "Popular Unity" (UP) coalition of socialists, communists, radicals, and dissident Christian Democrats, won a plurality of votes in a three-way contest and was named President by the Chilean Congress. His program included the nationalization of private industries and banks, massive land expropriation, and collectivization. Allende's program also included the nationalization of U.S. interests in Chile's major copper mines. A military coup overthrew Allende on September 11, 1973.

Government & Economy

Chile's Constitution was approved in a September 1980 national plebiscite. It entered into force in March 1981. After Pinochet's defeat in the 1988 plebiscite, the Constitution was amended to ease provisions for future amendments to the Constitution. Many among Chile's political class see further constitutional reform as necessary to complete the transition to democracy. Reforms that are currently under consideration include the abolition of non-elected Senators (institutional senators, or senators for life) and securing the Presidential right to remove the Commander in Chief of the Armed Forces. A number of these reforms have been approved by the Senate and are awaiting action by the lower house.

The next presidential and congressional elections are set for December 2005.

Chile's judiciary is independent and includes a court of appeal, a system of military courts, a constitutional tribunal, and the Supreme Court. Chile will complete in mid-2005 a multi-year overhaul of its criminal justice system. The reform has replaced inquisitorial proceedings with an adversarial system more similar to that of the United States.

After a decade of impressive growth rates, Chile experienced a moderate downturn in 1999 brought on by the global economic slowdown. The economy remained sluggish until 2003, when it began to show clear signs of recovery, achieving 3.3% real GDP growth. The Chilean economy finished 2004 with growth of 6.1%. Most experts expect GDP growth of around 6% in 2005.

Chile's independent Central Bank pursues a policy of maintaining inflation between 2% and 4%. Inflation has not exceeded 5% since 1998. Chile registered inflation of 2.4% in 2004 and is expected to see a 2.5% increase in 2005. Most wage settlements and spending decisions are indexed, reducing inflation's volatility. Under the compulsory private pension system, most formal sector employees pay 10% of their salaries into privately managed funds.

Total foreign direct investment rose to $7.1 billion in 2004, up from $2.5 billion in 2003. Both foreign and domestic investment in Chile had declined during the country’s period of slower economic growth from 1999-2003, but appear to be recovering strongly. The Chilean Government committed in early 2002 to undertake a series of microeconomic reforms designed to create new incentives for private investment. The government also has encouraged the use of Chile as an "investment platform" for multinational corporations planning to invest in the region. Chile's welcoming attitude toward foreign direct investment is codified in the country's Foreign Investment Law, which gives foreign investors the same treatment as Chileans. Registration is simple and transparent, and foreign investors are guaranteed access to the official foreign exchange market to repatriate their profits and capital. The U.S.-Chile Free Trade Agreement (FTA) offers a number of other investor protections.