3.4 Fiscal policy of President Eduardo Frei’s government, 1995-2000

The fiscal responsibility assumed by Frei was along the same line as the previous government, in keeping with a fiscal responsibility that would strengthen public finance and reduce public debt. During this period the financing of public programs was reduced by external borrowings, which was done in order to pay off the Treasury’s debt with the Central Bank, making prepayments together with the prepayment of credits with multilateral agencies, all of which allowed reducing public debt from 43% in 1991 to 15% in 1996.

The reduction of public debt helped to reduce pressures on the capital account about the exchange rate, making the management of monetary policy easier and liberating fiscal resources to finance social programs of high priority 32.

In 1996, the expenditure on social security became the component with the most participation, representing 40.9% of the whole; that increase was reflected on the improvement of retirement pensions and pension funds for widows, and the increase of the amount of monetary subsidies directed to the poorest groups of the population, such as assistance pensions and family allowance.33.

In 1997 Chile completed twelve successive years of fiscal surplus and saving, and seven years of expansion regarding social expenditure and infrastructure. That year the government worked not only to attain macroeconomic conditions that would allow sound and sustainable growth, but also to assume responsibility to overcome poverty and improve citizens’ welfare conditions.

As a consequence of all this, the State had to assure the citizens that these resources were used efficiently not only as an economic duty, but also with a sense of public service, since policies are developed and financed with the contributions of all the Chilean people.

During this period, Freí Ruiz-Tagle’s government emphasized investment, both in infrastructure and human capital formation.