Chapter

Establishing Credibility

Sebastian Edwards

in The Decline of Latin American Economies

Published by University of Chicago Press

Published in print August 2007 | ISBN: 9780226185002
Published online February 2013 | e-ISBN: 9780226185033 | DOI: http://dx.doi.org/10.7208/chicago/9780226185033.003.0009
Establishing Credibility

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This chapter investigates an important historical stabilization episode in Chile, a country with one of the longest histories of chronic inflation in the world, and which, starting in the late nineteenth century, suffered recurrent and increasingly frequent inflationary outbursts. Of the many stabilization programs adopted to tackle this problem, the 1955–1958 package implemented with the advice of the United States consulting firm Klein-Saks, is, undoubtedly, one of the most fascinating. The chapter argues that the foreign advisors of the Klein-Saks Mission gave initial credibility to the stabilization program launched in 1955, playing the role of independent, nonpartisan technocratic arbiters. However, providing initial credibility was not enough to ensure success. In spite of supporting trade reform, foreign exchange rate reform, and the deindexation of wages, Congress failed to act decisively on the fiscal front.

Keywords: Chile; inflation; stabilization programs; Klein-Saks Mission; trade reform; foreign exchange; rate reform; deindexation; wages

Chapter.  16037 words.  Illustrated.

Subjects: International Economics

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