The government of Chile

¶ … government of Chile reduces one of its key interest rates. In this way, the values of several other Latin American currencies can be expected to alter substantially against the Chilean peso in response to the news. Based upon this, we will explain why the other Latin American currencies can be affected by a cut in Chile's interest rates. Additionally, we will see how the central banks of other Latin American countries be would likely to adjust their interest rates and how the currencies of these countries would respond to the central bank intervention. Finally, we will examine how a U.S. firm that exports its products to Latin American countries would be affected by the central bank intervention, assuming that the exports are denominated in the corresponding Latin American currency for each country. The glue that binds all of this together is the interweaving economic policies of the IMF and the World Bank that links economic policies of countries such as interest rates to each other in all of the Americas.

Analysis

Chile is an example of neoliberalism. Neoliberalism is a modern political movement that advocates economic liberalization, open markets and free trade. This theory supports the privatization of industries that have been nationalized, deregulation and the enhancement of the role of the private sector in the modern society. This is commonly based upon neoclassical or Austrian economics. The term neoliberal is often used as a blanket condemnation of economic liberalization policies and their advocates ("Neoliberalism: origins, theory,," 2005).

Chile and Latin America

In Chile, it can be considered that neoliberalism happened under what can be considered a military dictatorship with severe social repression. Chile now has the highest rate of GDP per capita in all of Latin America. This lends a strong credence to the claim that economic freedom is more conducive to prosperity than democratic institutions are. Also, the increased economic freedom put pressure upon the dictatorship over the course of time and for an increased political freedom. Similar to what happened in Chile happened between the 1930s and the late 1970s in most countries in Latin America that used the import substitution industrialization model (ISI) to build their industry and therefore reduce their dependency upon imports from foreign countries. The result of the ISI in these countries has included the rapid urbanization of one or two major cities and a growing urban population of the working class and a membership in the world economic system via globalization through the vehicles of the IMF and the World Bank. Much of this was done in response to the economic crisis of 1997 when the leaders of these countries very quickly adopted and the implemented new neoliberal policies. In countries such as Argentina, Brazil, Chile, Mexico, Peru, the United States and Uruguay, capitalism and central private banking are now the norm with firms and economies being one intact whole (Taylor, 1997, 145-146).