Explainer: Chile's 'Chicago Boys,' a model for Brazil now?

BRASILIA (Reuters) - Brazil’s far-right President Jair Bolsonaro has put economic policy in the hands of a team of University of Chicago-trained economists led by Economy Minister Paulo Guedes who will apply liberal shock treatment to Latin America’s largest economy much as Chile’s “Chicago Boys” did four decades ago under military rule.

A combination picture shows (top row L-R) Brazil's new Economy Minister Paulo Guedes, the President of the Brazilian National Development Bank (BNDES) Joaquim Levy, Roberto Castello Branco, the new CEO of Brazil's state-run oil company Petrobras and Banco Bradesco SA CEO Rubem Novaes. REUTERS/Adriano Machado/Ueslei Marcelino/Sergio Moraes/Adriano Machado/File Photos


The so-called Chicago Boys were a group of young Chilean economists who studied in the 1970s at the University of Chicago under Nobel Prize-winning economics professor Milton Friedman (1912–2006), later best known as an adviser to U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher.

They convinced Chilean dictator General Augusto Pinochet to allow them to apply free-market policies to open the economy and privatize state companies, although not copper miner CODELCO. Price controls were abolished, imports liberalized and the financial market was deregulated allowing for the inflow of foreign capital thanks to a currency pegged to the dollar.


Those policies were credited with jump-starting Chile’s stagnant economy, which saw high growth rates from 1977 to 1980, averaging 7.9 percent, with inflation slowing from the three-digit levels reached under the socialist government of Salvador Allende that was overthrown in a military coup in 1973. The policies were reviled by critics on the left who said they deepened poverty and increased unemployment among a working class deprived of union or political rights. Dollar-denominated debt grew fast.


Their strategy was upset by the 1979 oil crisis that sent prices sky-high and weakened the U.S. dollar to which they had fixed the currency. Friedman later disowned the dollar peg, saying it had not been his idea. The 1982 economic crisis threw Chile into its worst recession since the 1930s, GDP shrank 14.3 percent and unemployment rose to 23.7 percent. Businesses went bankrupt and banks had to be bailed out by the government. The crisis resulted in a mid-course correction by Pinochet, who replaced the Chicago-trained team with economists more inclined to state intervention and protectionism. Orthodox policies were resumed in 1985.


Nonetheless, and despite the social hardships created by a repressive military regime, the Chicago Boys’ policies laid the foundations for Chile to transform itself from a poor nation into the consistently best performing economy in Latin America with the highest per capita income. Despite a population of just 18 million, Chile is known as a thriving exporter of a wide range of products beyond key commodity copper, and has a modern pension system.

The economic model begun by the Chicago Boys was so successful that Pinochet’s opponents maintained its key tenets and even deepened some orthodox policies after democratic civilian rule was restored in 1990.

Reporting by Anthony Boadle; Editing by Christian Plumb and Frances Kerry