Economic Problems in Chile

High levels of external debt have plagued most developing countries over the past 20 years. Chile has not been an exception to this state of affairs (The World Bank, 1993, p. 168). Chile has, however, acted with greater effectiveness than have some other developing countries to moderate the potentially devastating relationship between external debt and gross domestic product (Ahmadu, Bascomb, Heiman, van Duyn, 1992, pp. 19-33).

The reduction of external debt as a proportion of gross domestic product has caused an increase flow of private investment funds into Chile (Biesada, 1992, pp. 56, 58). While foreign investment capital is welcomed by developing countries, the massive influx into Chile has been too great for the economy to adsorb. As a consequence, Chile's inflation control plan is threatened, and the country's central bank has revalued the peso by five-percent. In turn, the revaluation threatens the exports that have enabled Chile to reduce the level of the country's external debt relative to gross domestic product. Chilean economic planners, thus, find themselves on the horns of a dilemma. An external deficit develops for a country when the claims of foreign entities on the country's economy exceed the claims of entities in that country on the economies of other countries. A country's external debt is comprised of loans to both government and private sector organizations

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wn as conditionality (Brookings Institution, 1991, pp. 182-190). Conditionality, as used by the IMF, refers policies that member nations are expected (by the IMF) to agree to implement and observe, as a requirement, before a balance of payments loan is extended from any of the organization's special financing facilities. Agreeing to abide by these IMF-developed conditions is also usually required by private sector lenders. The nature of the conditions imposed by the IMF vary from case to case. Conditions, however, are expected to provide confidence that the borrowing member will overcome its balance of payments difficulties and be able to repurchase its currency from the Fund without undue strain during the specified period. When extremely serious problems are involved, conditions may not attempt impose a return to a balance of payments surplus position during the term of the loan. More often than not, conditions established by the IMF emphasize measures which affect balance of payments through the level and composition of demand within the borrowing nation's domestic economy. Conditions may also emphasize supply factors. In recent years, conditions have also often emphasized the creation, within a bor
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Some common words found in the essay are:
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Approximate Word count = 1620
Approximate Pages = 6 (250 words per page)

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