Chile (B): A Changed Jungle for the Latin American Tiger

Abstract

In the early 1990s, the Chilean government restricted the flow of capital into the country in order to achieve a competitive and stable exchange rate and to control inflation; by the late 1990s, with the Asian Financial Crisis, the risk-averse behavior of foreign investors caused a slowdown in the inflow of foreign capital to such an extent that the country risked a slowdown in industrial activity and a drain on foreign reserves. The Chilean government must decide what to do. See also the A case (UVA-BP-0461) and the abridged case (UVA-BP-0458).

Keywords: Exchange rate risk, international trade, emerging markets, monetary policy