Spanish Lessons: Mexico Might Learn From Fall of the Peso In Chile Last Decade --- The Pain Was Deep, but It Transformed the Nation Into a Global Exporter --- Prerogatives of the Dictator
SANTIAGO, Chile -- From the construction cranes dotting the skyline to the modernist paintings decorating the subway, this capital has a thriving air that seems more characteristic of a Scandinavian country than a Latin American one.</br></br>But Chileans won't easily forget the steep price of today's prosperity: the great currency collapse of 1982.</br></br>The implosion of the Chilean peso -- which declined more than 90% in 12 months -- followed an ill-fated effort by a group of U.S.-trained economic officials to peg the currency to the dollar. In the ensuing crisis, one-quarter of Chilean workers lost their jobs, wages regressed to levels not seen in a decade, and soup kitchens provided the only sustenance for millions of the impoverished. Within the depression, however, lay the seeds of Chile's current boom. Forced to look outward for new markets, Chilean companies turned into dynamic exporters, which today sell chopsticks to Japan, wine to Europe and machinery to the U.S.</br></br>Chile's success in transforming a currency bust into an export bonanza underscores a widely overlooked silver lining in the recent Mexican peso crisis: The almost 35% devaluation of the peso could significantly accelerate Mexico's evolution as an export power, a process that was well under way when the country joined the North American Free Trade Agreement. But along with offering hope for Mexico, the story of Chile's painful comeback from devaluation also contains a warning: Mexico will discover that sacrificing near-term domestic wealth for long-term international competitiveness places severe strain on the nation's social fabric.</br></br>"If Mexico's devaluation is to benefit its exports, Mexico must do what Chile did: avoid an inflationary spiral," says Sebastian Edwards, chief economist for Latin America at the World Bank. "That requires sacrifice."