According to the CIA's World FactBook, Chile's GDP growth was 3.2% down from 4.7% in 2007. When the GDP is segmented into economic sectors, mining (copper) is the largest percentage at 18.6% and financial services is the second at 16%. Their exports are dominated by mining copper at nearly 43%. Chile's import and export partners are diversified with no country buying or selling at greater that 20% of the total. Chile's account balance, which is effectively the country's net of exports and imports plus earnings from interest, dividends and transfer payments from the rest of the world, is -$3.44 billion which is down significantly from the 2007 balance of $7.189 billion. This is merely a result of the global recession. For comparison, the largest account balance in 2008 was China with $426.1 billion and the lowest was the United States at -$706.1 billion.1
Chile's government is composed on three segments: the judicial system led by the Supreme Court, the legislative powers made of the senate and the chamber of deputies, and the executive powers controlled by the President.2 Chile's legal environment is composed of three segments: public law, private law, and criminal law. The public law is made up of the Constitution of the Republic of Chile which was passed in 1980, replacing the previous constitution of 1925, and has undergone many amendments since 1980.
Chile's government underwent a significant change during the 20th century due to failed economic reforms. The Populist Party took power in 1970 under president Salvador Allende due to disparity in income between the upper and lower class. His goals were to consolidate the national government by nationalizing the mining, banking and agricultural sectors. Considering that Chile produced around 24% of the world's copper, their government expected the global demand would compensate for the increased government expenditures. Private and public wages increased and the "public sector employment grew at an average of 11.4 percent."3
In the short-term, 1971, GDP increased and unemployment fell. Unfortunately, the GDP began to decline in 1972 while government spending continued to rise while copper prices fell. A massive deficit developed which helped inflation mushroom to a 600-percent annual rate. With public markets in shambles, black markets and corruption took hold. After months of national strikes and protests, in September of 1973, the armed forces took control of the government.2
This military government was led by General Augusto Pinochet with three objectives to save Chile's economy: "(i) liberalization of the economy to increase the role of markets, (ii) privatization to return firms to the private sector and restructure the public sector, and (iii) stabilization and avoidance of a balance of payments crisis."2 Through many reforms, Pinochet worked towards re-establishing a free-market in Chile. The liberalization was effective in that the markets were reopened and the deficits decreased. Unfortunately, the wage disparity returned and quality of life declined. The economy bottomed out in the early 1980s when copper prices dipped. This was a wake-up call that the economy needed diversification, so the government lifted export taxes on several industries to encourage growth. In spite of these efforts, the government took control of the major banks in 1983 after over 800 firms declared bankruptcy. The economy finally stabilized in the late 1980s and the banks were privatized with newly appointed owners. After a public vote and pressure from the United States and Germany, Patricio Aylwin was elected as democratic president in 1989.2 Chile's government has remained democratic ever since.
The 2010 Presidential Election of Chile is very soon and could mean fiscal policy changes in the future. Sebastin Piera, candidate from the Alianza coalition, will be running under the banner of more conservative policies which may have hints of the Pinochet regime. Chileans may be ready for change due to the "slow growth and high prices [that] are eroding confidence in President Michelle Bachelet and her government."4The Economy
Chile's economy is categorized as market-oriented and has been rated as the 30th most competitive country in the world according to the Global Competitiveness Report which is highest in Latin America. This report, developed by the World Economic Forum, has 12 pillars necessary for an advanced competitive economy which are given numerical values. The country in analysis is also categorized by the following stages of development: 1. Factor Driven, 2. Efficiency Driven, and 3. Innovation Driven. Chile was assigned the value of transitioning between 2 and 3. It fell short on the 12th pillar which is Innovation.5 As mentioned before, copper is the predominant export of Chile at 43% of total exports. Chile's economy is highly dependent on the global market due to this specialization in copper and lack of domestic production diversification, exemplifying the principles of David Ricardo's comparative advantage.
Chile's largest banks and corporations operate within three different stock exchanges: The Santiago Stock Exchange, Bolsa Electrnica de Chile, and the Valparaiso exchange. Recently, a market opened, Bolsa Emergente, for small to mid-sized companies to increase their exposure to capital opportunities. Once the pension program was privatized by the military government, these stock markets became crucial to corporations. As of 2004, the private pension system made up 60% of the GDP in total assets. The pension institutions are "by far the country's largest institutional investor, owning 13% of equity securities and 38% of corporate bonds" sold by public companies in Chile.6
The Wall Street Journal and The Heritage Foundation have cooperated to develop an index to quantify economic freedom (2009 Index of Economic Freedom) which embodies the principles of Adam Smith's Wealth of Nations such as "liberty, prosperity, and economic freedom." There are ten barometers, with numerical values, used to measure these principles: Business Freedom, Trade Freedom, Fiscal Freedom, Government Size, Monetary Freedom, Investment Freedom, Financial Freedom, Property Rights, Freedom from Corruption, and Labor Freedom. This index ranked Chile at number 11 in the world overall with an Economic Freedom score of 78.3 (accumulation of the ten measurements). It is ranked higher than any country in South or Latin-America and higher than most Western European countries.7
Chile's weakest freedom was Business Freedom with a rating of 66.3 (declining from 2008). This barometer is measured by the ease with which one can open or close a business. It is an indication of the efficiency of government and the strength of regulations within a country. Per the high rating of uncertainty avoidance in Hofstede's cultural dimensions, it is expected that the Chilean government would have extensive regulations over businesses to increase the confidence or certainty in businesses. 7
Chile's highest ranking barometer of the Index of Economic Freedom (EFI) was Government Size. This component takes into account "the level of government expenditures as a percentage of GDP." There is no ideal size of government for this barometer, a government with no public spending is optimal but will be penalized in other freedoms. Chile's GDP in 2008 was $245.1 billion while government spending was 18.2% of GDP. This is a result of low expenditures, "sound budget management and... a new fiscal transparency policy." 7
Chile's Property Rights scored 90, the same as the United States, Canada, and the United Kingdom. This measurement is a scale with attributes assigned to the numeric values. A score of 90 indicates that "private property is guaranteed by the government, the court system enforces contracts efficiently, the justice system punishes those who unlawfully confiscate private property, corruption is nearly nonexistent, and expropriation is highly unlikely."8 Chile's guarantee of these rights is in its Civil Code which explains contract law and private property. The EFI states that Chile needs legislation to further protect intellectual property, such as pharmaceutical products patents. In 2007, Office of the U.S. Trade Representative added Chile to its Intellectual Property Blacklist due to repeated failures to uphold patent rights in the pharmaceutical industry. Chile has a number of loopholes in the government which are exploited by local manufacturers to produce a copy of the corporate pharmaceutical product. Pharmaceutical Research and Manufacturers of America (PhRMA) claim losses around $100 million due to these copies. They face legal resistance and bureaucratic red-tape, at their own expense, if they plan to pursue compensation in Chile's judicial system for the patent infringements.9
In terms of Freedom from Corruption, Chile scored a 70 which is only 2 point lower than the United States' rating. Chile has taken steps to reduce corruption within their nation by agreeing to the Organization of American States Convention Against Corruption. Chile has also joined the Organization for Economic Cooperation and Development (OECD) which will raise its business ethics and practices to the European standard.6 This freedom is measured by multiplying the Corruption Perceptions index by 10. Transparency International developed a Corruption Perceptions Index (CPI) which quantifies on a scale of 1-10 the corruption within a country based on public perception, expert opinion, and opinion surveys. Chile ranked highest in South America with an index of 6.7. This placed it 25th in the world, ranking higher than several Western European countries such as Spain, Portugal, and Italy.10 Although this index paints a rosy picture, an article titled "CHILE: Corruption Scandals Contrast with Clean Reputation" claims there is pervasive corruption in the government and many Chileans have a "very poor opinion of politicians."11 The journalist went on to describe a number of historic corruption cases and present corruption still occurring.
In spite of Chile having a lower Financial Freedom rating than nine of the top ten overall countries, the Index of Economic Freedom asserts that "Chile's financial system is among the region's and the world's most stable and developed." Its lower rating is attributed to the limited government influence over the financial system, and in particular credit policies. The Chilean government has in place rigorous barriers and limits for banks when they are extending loans to a single debtor or companies.The Culture
According to Geert Hofstede's Cultural Dimensions, Chile shares the same rankings as most Latin American countries. Chile's highest ranking is in uncertainty avoidance which is indicative of a risk adverse culture that is in favor of stricter rules and regulations. Chile's lowest dimension is individualism which is a similar trend found in collectivist cultures. These cultures are family/community oriented and also build strong relationships in their everyday lives. Collectivists take a personal stake in the success of the people with whom they have these relationships by putting them before most other obligations. This is in contrast to an individualist culture which puts self-interest first. The other cultural dimension of note is the power distance which is relatively high. This may be a result of the pervasive Catholic influence in Chilean life, a lasting legacy of Spain's colonization. Catholicism is historically hierarchal and that may have influenced the divide there is between those in power and those not.12
Hofstede's Cultural Dimensions can be used to determine accounting values according to S.J. Gray. The accounting values are segmented into four hypotheses which determine the value (2 polar opposite values per hypothesis) and are influenced by three or more of Hofstede's dimensions. For example, his first hypothesis reads "The higher a country ranks in terms of individualism and the lower it ranks in terms of uncertainty avoidance and power distance, the more likely it is to rank highly in terms of professionalism."13 If the country ranked on the opposite end of the spectrum, it would be given the statutory control value, which is the same value expected to be found in Chilean accounting. This could again be the result of the Catholic Church which has strict rules over the religious body.
The next accounting value expected to be found is uniformity. This would indicate that the accounting rules and practices are enforced the same between businesses, in contrast to flexibility which would study the surroundings of each particular business for rule enforcement. Also, Chilean accounting would be expected to have the value of conservatism. This is a direct result of the high uncertainty avoidance found in Chile's culture dimensions. Conservatism implies that accounting valuations require prudence and skepticism to reduce the risk of uncertain events.
Gray would also assign Chile the accounting value of secrecy. This indicates that there could be a lack of transparency in the financials, if they are published at all.13 An example of secrecy found in Chilean GAAP: the end-user in mind when the new standards are developed is accounting practitioners which are not the usual end-user (investing public).6 Gray's hypotheses should only be used as a starting point for understanding a country's accounting system, not as the final description of the values.
The World Bank's Report on the Observance of Standards and Codes (ROSC) describes Chile as having several main economic objectives. These include maintaining Foreign Direct Investment (FDI), fostering small business growth, enabling investor confidence, and increased integration into the global economy. 6 With these objectives in mind, Chile's accounting system, like any other, strives to provide relevant information to its users. For the most part, Chile's accounting system has been successful in implementing well-established standards and practices. However, important discrepancies exist in areas such as auditor qualifications, the setting of new standards, convergence with IFRS, and more, which will be discussed in the following sections.Legal Framework:
Understanding the governance framework of the Chilean economy is necessary to understanding the accounting system. Chilean companies take on either an "open" or "closed" status; this can be compared to a public or private status in the US. To be an open corporation, the company must have at least 500 shareholders and at least 100 of those shareholders must own 10% of the capital.6 Open corporations are required to be audited each year, whereas closed corporations are not required to have an independent audit. This leaves a large portion of the Chilean market unaudited. In fact the World Bank estimates that only 500 of the 6,500 large companies, as defined by the government, are classified as "open" companies. 6
By Chilean law, all tax returns have to be prepared with December 31st as the year end. Because of this, most companies have a fiscal year ending December 31st no matter what kind of economic cycles it may be in. The Superintendency of Securities (SVS) is the governing body over open and registered companies. The Chilean College of Accountants (CCC) can be best compared to the AICPA in the US in so much as it is a member organization for accountants. The CCC, along with 3 different governing bodies -, Superintendency of Banks and Financial Institutions (SBIF), the Superintendency of Pension Funds Administrators (SAFP), and the SVS - share the responsibility of standard setting for financial reporting and auditing. There is a significant amount of confusion on the part of the users of Chilean accounting standards because the lack coordination between the 4 organizations. The standard setters rely heavily of practitioner input when developing standards, and pay little attention to the needs of the financial statement users. 6
Large Chilean corporations are required to be reviewed by a "director's committee" which reports to shareholders on related party transactions, protection of minority shareholders, and management compensation. These committees fall short of providing the services that we would expect from an audit committee in the US such as monitoring internal controls and the audit process. The World Bank reports that while more resources would help the committees provide better services, the recent introduction of director committees is a big leap for Chilean governance and oversight. 6Accounting Profession
There are significant differences between Chilean and US/International qualifications to become a public accountant. Chile's universities are charged with the responsibility of providing the necessary curriculum for students and there is no mandated minimum curriculum by the Chilean College of Accountants (CCC). Most Chilean accountants are affiliated with the CCC; however, membership is not required to be able to perform an audit. The college provides a code of ethics that each of its members must follow, but as the World Bank's ROSC mentions, the code lacks specificity and guidance on how to put those ethics into practice. Furthermore, the CCC lacks the necessary resources to effectively enforce its code of ethics and has little incentive to enforce strict compliance because membership is not required. The report goes on to criticize the severity of the penalties when accountants deviate from the code of ethics or engage in fraudulent activity. The Big 4 audit firms dominate the Chilean audit market by providing services to more than 70% of open and registered companies.6
Possibly the biggest difference between the US and Chilean accounting industries is the professional examination. In Chile, there is no examination as a prerequisite to becoming a professional accountant. The CCC views this as a deficiency and is currently attempting to develop a certification process.6 Furthermore, there is no requirement that accountants stay abreast with new developments in the business and audit environment through continued professional education. This degrades investor confidence in the validity of auditor's statements regarding a company's financials.Chilean GAAP (CGAAP) versus International Standards
The first thing to note about Chilean GAAP is that it is developed by four different organizations. Legally, the CCC is charged with defining CGAAP, but the SVS, SBIF, and SAFP have authority to determine principles as they relate to the companies that fall under their governance, namely financial institutions and open companies. This causes differences in the interpretation and implementation of CGAAP throughout the business environment. Chilean GAAP was originally designed off of US GAAP; however, beginning around 1997, Chile has made an attempt to merge its GAAP with International practices while keeping some local principles unique to the country. While moving IFRS presents many reporting and comparability benefits, the process is difficult and Chilean GAAP still has some problem areas. The World Bank's ROSC reports that in general, Chilean principles are less stringent than International principles and there is a greater reliance on the interpretation of CGAAP by professional accountants. Some examples of key differences are explained in the following paragraph. 6
Chilean GAAP does not require categorizing investments in financial instruments as either held to maturity, available for sale, or trading securities. In addition, securities are not recognized at fair value but rather the lower of historical cost or market value. Chile also employs price-level accounting which adjusts the financial statements according to price fluctuations during the period. This method is intended to negate the effect of inflation and is acceptable under IFRS only if the country is experiencing hyperinflation; however, Chile is far from meeting the hyperinflation threshold. Banking subsidiaries of companies whose main business is outside the financial industry are not consolidated with the parent company. This is done because of the different accounting policies that govern financial and non-financial industries. Chilean GAAP does not require segmental reporting; a feature that provides users with valuable information about a company's diversified operations in several different markets or locations. Overall these differences present problems for financial statement users, investors, and Chile's economy. The lack of detail and the difficulty of comparing Chilean corporations in the global economy can lower investor confidence and FDI into the country, as well as limit small business's access to credit. 6
There have been recent policies in Chilean Accounting that demonstrate the move toward an international based system. For instance, the CCC's Technical Bulletin 56 provides a catch all for holes in CGAAP by stating that a relevant International Accounting Standards should be adopted when there is no guidance provided by the CCC. More importantly, the SBIF recently decided to require banks to adhere to IFRS starting in 2008. This is believed to indirectly help the non-financial sector move towards the IFRS adoption for several reasons. Investors will begin to want the better information that IFRS provides, banks will offer incentives for debtors to have more reliable information through IFRS, and businesses with banking operations will have be more inclined to adopt IFRS for the whole company. 6 IASPlus, an online international accounting news source run by Deloitte, reports, "Chile is moving to adopt IFRSs for all SVS registrants and all SBIF regulated entities over a three-year period from 2009 to 2011." The adoption is scheduled to start with the biggest open companies and trickle down to the middle market, while leaving the private sector under the CCC's control.14Audit Function and Standards (CGAAS)
Chilean auditing standards resemble international standards, but fail to touch on some key areas of concern, are generally less specific, and offer less guidance on implementation. Some issues not covered by CGAAS include: the auditor's understanding of the client's business and transactions, first time engagements, and information systems (IS) risks. Similar to CGAAP, CGAAS section 101 states that International Auditing Standards should be followed when Chilean guidance is absent.6
The failure of the CCC and the Superintedencies in enforcing auditing and ethical standards lowers the public confidence in the audit practice. This is only exacerbated by the lax requirements to become a professional auditor, and the vague nature of many CGAAS. Chilean accounts are allowed by law to own 3% of the clients they audit. This policy is contrary to popular precedent of zero ownership in client stock. Furthermore, the adoption of December 31st as the fiscal year end for nearly every Chilean company presents a challenge in providing quality audit work. Temporary workers who are often unlicensed and inexperienced are needed to get through the busy season. 6 While Chilean audit standards and practices have good foundations, there remains room for improving public trust in the audit function.
Potential Application of Base of the Pyramid Protocol
The 4 billion people living and working at the base of the economic pyramid, represent a huge opportunity for the multi-national corporations. An opportunity that is not base solely on profits but also on the improvement of the lives of the poor. Doing business with the base of the period requires a imaginative strategic outlook based on collaboration and sustainability. Taking a market based approach towards business at the bottom is the best way to identify and implement a successful business venture.
The BOP is split up into six income segments. Latin American BOP spending is said to be top heavy in relation to these six segments. This means that that the majority of the BOP spending comes from people that are in the "top" of the bottom of the pyramid. A World Resources Institute study called The Next 4 Billion indicates that people in the BOP have different spending habits dependent upon which income segment they fall into. Food and shelter are the first priorities of all people in the BOP; but as income rises, people have a desire to spend money on transportation and especially information and communication technology (ICT). Chile in particular has a relatively low BOP population and BOP share of total income. The BOP in Chile is also very top heavy, and spends more on transportation and ICT.15 The country is highly urbanized, with 88 percent of the population dwelling in urban areas.1 Urban populations have better access to electricity and are also inclined to spend more on ICT.15
Chile's non-government organizations have been working at the bottom of the pyramid for close to 30 years. There has been success outside of the ICT and Transportation markets. Fondo Esperanza has offered microcredit lending to over 30,000 Chileans; the large majority of whom are women.35 Fundacin Solidaridad is an organization that enables poor families to produce and sell handmade items such as blankets and jewelry. The group helps with a variety of business issues including: micro business management, finding customers, and accessing credit. Fundacin Solidaridad's homepage describes how they provide "hand made dignity" to the people they serve.16 Chile should use these types of organizations as a stepping stone to implementing more BOP partnerships.
There is a significant opportunity to do business at the BOP in the ICT and Transportation markets of Chile. The majority of the ICT market consists of mobile phone service. The amount of services that can be distributed through mobile technology is constantly increasing; take mobile phone banking for example. Another possible ICT opportunity is the use of thin client computing. Thin client computing eliminates much of the traditional costs of owning a computer such as operating systems, software, and storage because the products are offered over the Internet. As Internet activity becomes cheaper and more widespread, thin computing will be able to reach a larger number of people who could not previously afford to be connected. Combine this with a shared services approach similar to the village phone ladies, and the BOP will have access to a wealth of information. These technological advancements provide more opportunities for those at the BOP. Considering the Urban nature of Chile's population, opportunities in the transportation market may be found in mass transit or shared services of individual transportation.
ICT market opportunities are the most exciting because of the opportunity to communicate and share information. Social networking through mobile phones and the Internet may soon become a reality for the BOP that can spur on creativity and problem solving. Jenara Nerenberg, founder of BOP Source and a new media marketing consultant, describes the potential of ICT in the BOP:
Imagine an entrepreneur in the middle of her village who is literate with her elementary school education and who is now the chief ethnographer of her community, appointed by Nokia, Danone, Unilever, or any other large MNC. Her title signifies the new wave of consumer research in base of the pyramid markets and she is corresponding with the Marketing Department abroad via cell phones, relying on her video and voice recordings of interviews, focus groups, and other research. She has a well-paying job and is giving MNC's the best, most accurate and thorough insights into her communities' lifestyles, behaviors, customs, needs and wants through mobile technology.44
Jenara's illustration provides an example of how creative thinking can be combined with information technology to do business with the bottom of the pyramid. ICT markets provide a great opportunity for the integration of the 4 billion people at the BOP into our global economy.
Impact of Globalization: The Good, the Bad, and the Ugly
Globalization has given Chile an option to reach markets outside of Latin America. It has served as an impetus to economic development within the country. Schmidt- Hebbel points out that since Chile has had a long-term history of volatility, the government in the 1970s and 1980s provided more stability to grab hold of the expanding market. The per capita gross domestic product (GDP) has been rising annually 4.8% from 1986 to 2005. Even with such an increase, the improvement has occurred mainly in Santiago (46% in 2000) while leaving the remainder of the twelve regions decreasing in GDP. The migration to Santiago by many people in the outer regions resulted in the increase; however, there has been an increase in wealth in about five of the regions from 1987 to 2005. If Chile plans to maintain economic development, the country must maintain "the quality of its institutions, financial openness, and macroeconomic stability (Schmidt- Hebbel, 31)." 17
Other improvements due to economic development have occurred in Chile, such as unemployment, inflation, and minimum wage. The unemployment level has decreased from 9.2% to 7.5% from 2002 to 2008, and due to the economic downturn world wide the unemployment rate has been fluctuating with a level as high as 10.2% in September of 2009. 18 In addition, the percentage of those below poverty line in 1987 to now has dropped dramatically (46% to 18%). 19 The inflation rate currently is -1.9% in October 2009, which with the help of global trade dropped from 35% in 1980. The country is now faced with the issue of deflation due to the problems with worldwide economy. 20 The minimum wage has also improved in the country, from 1990-2004 the real minimum wage rate grew by 70.1%. Though economic improvement has happened, the minimum wage increase is a prime example of how it has lead to larger income gap. 21Along with these positive changes, globalization has also opened up Chile's borders for offshore outsourcing.
Chile is becoming a major competitor for companies to offshore outsource services. As globalization occurs, Chile is trying to appeal to large companies as a location to outsource services offered by their companies. It is important to realize that as the country attracts more jobs, the government will have a more difficult time maintaining labor standards. The move to higher paid services is a challenge for the country. The education system does not produce the level of workers required to support a huge surge in outsource demand by large companies. The government offers incentives for companies to locate within the country, but it has not devised a way to increase the output of skilled workers. 22
By referring to the theory of transaction cost economics (TCE) applied to offshore outsourcing by Ellram, Tate, and Billington, Chile would provide a positive location for multinational corporate to locate their large demand routine services.23 Chile provides strong property right protection, low government corruption, and openness to foreign direct investment according to the Heritage Foundation's Index of Economic Freedom. This index was discussed in more detail above under the section discussing Chile's economy. 7 All of these aspects are vital in applying TCE to offshore outsourcing. A company would locate in Chile because they could rely on property right protection and stability in the environment. If Chile is successful in providing the workers for outsourcing, then it could potentially become the next India in terms of standardized service providing for large multinational companies. 22 Though economic improvements have occurred in Chile, many areas like human resource abuse, crime, and natural resource depletion face the countries development.
Globalization coupled with Chile's trade policies has increased the level of employment and the minimum wage. Yet in Chile, there remains a huge income gap due to higher paid workers receiving the greater increase wage, and the lower paid workers receiving less of the overall increase. With unemployment on the rise, the jobs available go to higher income people, and those in poverty grow. Furthermore, the minimum wage amount supports one unskilled worker, leaving the worker unable to support his/her entire family. 21
Chile has made a large effort to prevent human resource exploitation. The country has begun to enforce policies on protection of union activity, and they have set up inspectors to maintain labor standards, such as safety and child labor. Unfortunately, many informal businesses in the economy are not included, and they slip by human rights enforcement.24 Currently, child labor is on the rise, up to 240,000 between the ages of 5 and 17, due to the world economy. 25 The International Labor Organization conducted a survey on child labor and found that over 3,000 children (ages 5 to 14) and 15,000 adolescents (ages 15-17) work more than 48 hours per week. The survey addressed some forms of dangerous and unconditional working conditions that children work. Children are involved in drug trafficking, sexual exploitation, child slave trade, and dangerous working conditions, like mining, night shifts, and conditions with lacking safety or hygienic standards. 26 Though Chile has made an effort to make working conditions better in the country, it becomes difficult to maintain standards in informal sectors of the economy.
Globalization has also led to the marginalization of indigenous people. Chile has recently made efforts to give constitutional rights, but indigenous people remain in poverty and lack health and educational opportunities. Instances of violence have occurred due to industry and government permission to push indigenous people off their land. Chile has sometimes used excessive force in resisting indigenous people's uprising, making it even more challenging in building a relationship to develop rights for these people where they are seriously lacking. 27
Chile is active in many transnational criminal activities, including drug trafficking, money laundering, and human trafficking. According the US State Department, Chile is has problems with cocaine and marijuana trafficking in South America. The country's border with Peru, Bolivia, and Argentina, allows the drugs to flow into the country and then to seaports in Chile. The drugs are then transported by sea to the rest of the world, and in most cases Europe. Money laundering usually follows activities like drug trafficking because the money from illicit activities needs to be transported. Two free trade areas, Iquique and Puntas Arena, in Chile have become hot spots for money laundering and illegal activities. The two areas lack any sort of regulatory body in transportation across borders; therefore, the prevention of such transnational crimes is nearly impossible. Iquique has over 1,600 businesses working in the free trade area, which further increases the opportunity for illicit activities. 28
Human trafficking is a serious problem in Chile. The country serves as a source of human slavery. Trafficking in the country allows for transportation within the borders and often times the country will serve as a stepping-stone into other countries (i.e. Chinese people transported to the United States). Those trafficked will often be women and children, who end up being sold into prostitution rings. Adult prostitution in Chile is legal, and a person above the age of fourteen is treated as an adult. Therefore, it is easier for human traffickers to evade Chilean government when selling people into prostitution. 29
Several environmental issues arise with the increase of Chile's involvement in the world economy. Natural resource depletion of forests and mined minerals has created environmental concerns. Air pollution from industry activity and water pollution are other issues addressed. According to WWF, Chile has lost 80% of its natural forests to degradation or destruction by industry. 30 A major area of natural resource depletion is copper; the largest copper mine is located in Chile. Water contamination caused by copper mines and improper waste disposal is one product of globalization in Chile. Industry has caused significant air pollution, especially in Santiago, along with soil contamination.31 Overall, Chile is faced with many environmental issues due to current industrial practices and to become sustainable they must address these problems.
Impact of NGOs, IMF, UN, WTO, and The World Bank
Non-governmental organizations (NGOs) are active in Chile. Amnesty International and the Red Cross are two worldwide players that have helped improve Chile. Amnesty International (AI) notes that even though Chile has contributed on the world stage in human rights, issues remain unaddressed within the country. Specifically, the organization calls on Chile to investigate human rights violations that occurred in the past and those in the present. Reforms were suggested in the military code, international criminal court, indigenous people's and women's rights.27 Chile created a National Human Rights Institute in September 2009 based on concerns like ones from AI.32 Chile is part of the Southern Cone group of the Red Cross, known as Cruz Roja Chilean, and has 154 branches and 7,000 volunteers. The Red Cross has helped in natural disasters, supporting health care in regards to HIV/AIDS and maternal and child health, and epidemic control in Chile. 33 The 17th Inter-American Conference of the Red Cross was held in Santiago, Chile in April 2003. 34
Chilean people have also taken their own initiative and many operate NGOs within the country and South American countries. Some of the major ones include Un Techo para Chile, Un Techo para mi Pais, Maria Ayuda, and Jundep. Un Techo para Chile is very successful and well-known Chilean NGO, founded in1997. It works with roughly 17,500 people to provide poor communities with necessities, such as water and electricity, and to build sustainable housing. Un Techo para mi Pais is the extension of Un Tech para Chile to fifteen countries in Latin America. Maria Ayuda is a Catholic NGO, which offers about 1,700 children a year support in areas of physical and psychological violence. The NGO is aimed at enhancing the children's futures. Jundep focuses on improving the livelihood of the poor in five regions found in Chile. The NGO has been providing homes and has been increasing rights awareness for the underprivileged since the 1970s. 35
International Monetary Fund (IMF) and Chile work together to assess how well the government is reacting to economic changes. Chile has been a member of the IMF since December 31, 1945. 36 During the end of the 70's and the early 80's, Chile was borrowing large amounts of debt from international banks based on ratings given by the IMF. Bello and Kelly blame the 1982 financial collapse on the IMF's ratings, which allowed the Chilean banks to keep borrowing. 37 Currently, the IMF in its Public Information Notice supported Chile's adjustments to the downturn in the world economy. The IMF supported Chile's changes in the fiscal framework in terms of the country's exchange rate, fiscal stimulus, and inflation target. The IMF suggested that Chile should not withdraw the stimulus until the end of 2010, giving spending more time to improve. 36 The International Monetary Fund is concerned with monetary stability in Chile and all over the world; therefore, it continually assesses Chile's policies and offers consultation to the country.
The United Nations (UN) was chartered on October 24, 1945 after the end of World War II. Chile was one of the original fifty countries that created the UN. It created to serve the purpose of stabilizing the world after World War II and to act as an intermediary for international disputes. Chile has a permanent mission to the UN and has always played an active role in the United Nations. The country has been involved in the UN's activities regarding international law; peaceful use of outer space; recommendations in decolonization; global disarmament; conference and public information policy; human rights; cultural and social rights. They have also participated in many of the Security Council's peacekeeping efforts. Chile was a member of the Economic and Social Council (EOSOC) until 2004. EOSOC was created to address issues in social policies and human rights, including areas like discrimination, problems with development, status of women, and narcotics. 38
More areas of United Nation involvement include board activity in the Educational, Scientific, and Cultural Organisation; Industrial Development Organisation; Conference on Trade and Development; Development Programme; Environment Programme; and Children's Emergency Fund. Some organizations in which Chile participates outside the United Nations are the World Health Organization; World Intellectual Property Organisation; and the World Tourism Organization. 38 On January 1, 2009, the UN voted Heraldo Munoz to serve as the Chairman to the Peacebuilding Commission for a one-year term. Munoz felt that Chile's participation would be advantageous due to the country's own experiences with dictatorships and the establishment of democracy. 39
World Trade Organization (WTO) was established to offer stability and order in trade between the countries around the world. Chile became a member of the WTO on January 1, 1995. They were also a contracting party to the General Agreement of Tariffs and Trade of 1947 since March 16, 1949. 40 The WTO reviewed Chile's trade policy for the fourth time in October 2009, the third review occurred in 2003. Since the last review in 2003, Chile has changed some trade policies to better incorporate the WTO's interests. The most favored nation tariff rate has been lowered from eleven percent to six percent. Chile currently imposes a value added tax of nineteen percent to import goods. The country has also removed the airport tax and the customs dispatch tax. To better support the WTO's intent, Chile has strengthened property rights since 2003. Lastly, Chile has been involved in ten trade disputes as complainant, in thirteen cases as a respondent, and twenty-two disputes as a third party over its entire history. The WTO has provided a framework for Chile to maintain a presence in world trade; when Chile has stepped outside that framework, they have faced trade disputes with the United States, the European Community, and other Latin and South American (examples, Peru and Argentina) countries. 41 Chile is also active in the Doha Development Agenda, which helps developing countries approach compliance with the WTO's trade initiatives. The first set of negotiations began in 2001, and the last set of discussions was held in Geneva in 2008. 42
Chile's participation in one multilateral agreement, thirteen free trade agreements, two economic association agreements, and seven partial preferential agreements have served as important factors in the country's economic success. By opening up trade, the country was able leap into higher exports and increased capital flow into the country. The important multilateral agreement is the involvement in the WTO, and the thirteen free trade agreements range from single country agreements to multiple country agreements. The one of main importance in South America is Chile's associate member status in MERCUSOR. MERCUSOR is a regional trade agreement including Brazil, Argentina, Paraguay, and Uruguay. Chile's association agreement with the European Community created in 2002 provides for a major access point to the large market found in Europe Union. The seven partial preferential agreements mainly include South American countries, but one agreement was made with India in 2006. 40
Chile and the World Bank have worked together to help the country develop towards its full potential. The Bank has mostly provided loans, consultation and guidance in the creation of programs in Chile. The World Bank has been active in helping in areas of social initiatives, such as those in education, pensions, and innovation, and structural development, such as transport systems, environment policy, and rural infrastructure. The list of involvement by The World Bank in Chile is extensive; therefore, some examples are given below. One example is the $200 million Social Protection SAL and $10.7 million Social Protection Technical Assistance Loan given to the country for its social objectives in poverty reduction and social protection. Loans have also been given by the Bank to develop higher education and learning initiatives in the country. An urban transport plan developed by the Chilean government has received a $30 million loan from the World Bank. Furthermore, the Bank works with the Chilean Ministries of Finance and Public Works to create better regulations for the country's infrastructure, and to improve country's public resources. As mentioned above besides providing loans to Chile for development, it has provided a strategy of partnership for development of the country. 43
Overall, Chile is involved in many organizations. The involvement in them has further facilitated the country's development internally and externally.
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