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My first visit to Chile was 10 years ago, when I stayed mostly in Santiago and Valparaiso. This trip, which extended through most of January, took me from the Atacama in the north to near Patagonia in the south, including a couple thousand kilometers of driving in a rental car, a couple thousand more of bus riding, and a whole bunch of flying. The trip was a pleasure, but it wasn't a pleasure trip; my ulterior motive in traveling six months a year is always to scope out which of the world's countries offer the most in personal freedom and financial opportunity. To date, I've visited over 100 and lived in seven; it's one way to fill those idle hours. It's no coincidence that I'll be coming out with a considerably expanded, revised, and updated edition of my first book, The International Man, in the near future. And Chile will be included this time. When I visit a country, my idea of seeing it doesn't have much to do with museums, churches, and tourist gift shops-at least, after the first day. The way to get to know a country and its people is by becoming proactive, and by logging time with lawyers, stock brokers, real estate brokers, political pundits, business people-and even a few cab drivers.

Doug Casey has lived in seven countries, and visited over 100 ~ most several times. His book The International Man played a part in inspiring this website. Doug Casey's viewpoint and his newsletter are distinctive sometimes outrageous, but always clear, dead honest and very canny.  ~  Since 1979 he's written a monthly newsletter, "The International Speculator"  ($145 p.a., 21,000 subscribers). In the near future he is going to be coming out with an expanded, revised, and updated edition of his first book, The International Man - The Republic of Chile will be included.

The Chilean economy

As late as the 1940s, Chile was still considered an advanced, First World country (as were Argentina and Brazil); then politicians got the notion the country could afford regulation, welfare, and the taxes to pay for them, and it was all downhill from there. A climax was reached with the election, in 1970, of Salvador Allende, a hard-line Marxist who was well on his way to turning the country into a replica of Cuba when, in 1973, he was assisted in shedding this mortal coil by General Pinochet, and perhaps the American CIA. This became a cause celebre for leftists around the world, and Chile rose from mere obscurity to recognition as a pariah, in a class with South Africa and Taiwan.

It's true that Pinochet wasn't exactly Mr. Nice Guy as he proceeded to cleanse the Chilean gene pool of at least several hundred leftists; but the toll was much less than often accompanies violent changes of government in the Third World. Pinochet's real crime in the eyes of the media was, of course, his freemarket economic orientation, which resulted in a genuine boom. In a way, the Allende years were a blessing in disguise for the Chileans; perhaps they needed to see a demonstration of socialism so real and graphic that the country would be cured of further large-scale attempts at social engineering for at least a full generation. It seems few countries are able to stop coasting downhill until the wheels literally fall off. Chile's gone through the catharsis which, I'm afraid, still lies ahead for the U.S. But back to the matter at hand.

More than most economies in the world, Chile's is fairly undiversified. Mining is by far the biggest industry, generating half the country's foreign exchange in a typical year. After mining, it's agriculture, forestry, and fishing-all primary, commodity-based extractive industries.

I presented the case for investment in Brazil in the December 1989 issue; there are lots of similarities with Chile- relative insulation from the world economy, expansion from a low base, low labor and land costs. But Chile has at least three additional advantages:

1) It has a small (13 million), generally well-educated, and ethnically homogeneous population. The average Chilean is a mestizo, and there's no structural underclass, unlike most places where the pure-blooded Spaniards are on top, and the Indians and blacks are cemented to the bottom. Argentina and Uruguay are two more exceptions, but only because there are no Indians or blacks.

2) Unlike any other country in Latin America that comes to mind (with the possible exception of Paraguay), bribery and corruption are both rare and frowned upon. You wouldn't, for instance, dream of slipping a fat bank note into your credentials when you're stopped by the police; in Mexico, you wouldn't dream of not bribing them.

3) Far more important than anything else, a sine qua non, is that Chile is a fairly open economy, certainly the most open in South America, and one of the most open in the world. It's far from a libertarian paradise, with marginal income tax rates approaching 50% and an 18% value-added tax. But it compares favorably with the competition at the moment, and things seem to be improving further, not backsliding. Aylwin, who was elected to replace Pinochet in 1991, has stuck with the program, lowering import duties from 15% to I I%, the lowest level in Latin America. The Central Bank inflates the currency at a fairly consistent 20% per year, which means that the value of the peso has collapsed from 39 to the dollar in 1979 to 380 today, but it's been a controlled collapse. And since there are no foreign exchange controls, and interest rates are free, the middle class has been able to build capital.

The way I see it, the trend is up in Chile (as with most of Latin America to varying degrees) for the foreseeable future.

How to follow the trend

What is the most practical way of participating in the growth of this country? There are several logical ways:

1) Buy real estate. When I visited Chile in 1980, 1 spent some time with a wealthy local at his house in one of Santiago's most fashionable suburbs. The house was typical of those owned by the upper classes in a Third World country; large, lots of handcarved fittings and furniture, swimming pool, tennis court, extensive landscaping, etc. At the time, it was worth about $25,000; today it's worth well over $1,000,000. The zinger is that in 1973, before Allende joined the ranks of the departed, the owner would have been happy to take $25,000. That's pretty much the story for land throughout the country: it's appreciated vastly over the years, and real bargains are long gone.

That's not to say I think it's overpriced for what you get; comparable properties, like meals in the restaurants, are still probably half what they'd be in the U.S. But real estate is selling for roughly its utility value; the risk/reward ratio isn't what it was back in the 70s, and those are the kind of things I'd rather draw your attention to. Entirely apart from the fact you'd be well advised to spend a good bit of time on location before making a commitment.

2) Get into business. That basically contemplates moving there, but there are plenty of opportunities. One of the things that jumped out at me was the low number of cars on the streets of Santiago, and the near-total lack of them on the highways outside. Your first reaction is: "Great! This is like California, but without the cars!" Exactly. The auto population is reminiscent of the U.S. in the early 50s, with all the correlary implications. One lady I know has cut a deal with Texaco to set up a string of gas station-cum-convenience stores, which is a perfect way of capitalizing on the trend. If you get on a plane, go down and spend a few weeks there, you'll see plenty of opportunities of that nature. But that's not the subject of this article.

3) Buy into the Chilean stock market. There are many object lessons to be had from developing markets (although the Santiago Bolsa has been around for almost 100 years). I'd like to cover the Bolsa next month, if only because there's a convenient way to participate in it, the Chile Fund (CH, $26). Unfortunately, I don't think I can give this fund the kind of unreserved buy that served us so well on Brazil Fund last year, and Korea Fund before that---despite the fact Chile Fund is selling at a fair discount to assets.

4) Buy shares of a foreign company with major interests in Chile, but whose shares aren't traded in Santiago, and therefore can be had at more reasonable levels.