Harnessing Globalization: The Promotion of Nontraditional Foreign Direct Investment in Latin America

3. Chile and CORFO’s High Technology Investment Promotion Program

. . . . . .3 Chile and CORFO’s High Technology Investment Promotion Program In early 2000, Mario Castillo, a deputy director of Corporación de Fomento de la Producción (corfo), Chile’s economic development agency, helped to devise a plan that signaled a dramatic change in direction for Chile.1 Even during the Pinochet regime and thereafter, with the supposedly market-oriented ‘‘Chilean Model’’ in place, the Chilean government had provided export incentives and subsides to specific industries, as well as special incentives for any firm investing in the extreme north or south of the country, in order to promote economic development (Agosin 1999; Ffrench-Davis 2002; Kurtz 2001; Macario 2000; Perez-Aleman 2000, 2003; Schurman 1996). But unlike many other Latin American countries, Chile had refrained from actively promoting foreign direct investment (fdi) from particular sectors or from specific firms. Although the government had a Foreign Investment Committee, this agency responded mainly to inquiries from prospective investors seeking information about the Chilean business environment. For the most part, the government relied on market forces alone to determine which specific foreign companies invested in the country. As a result, primary products-based and other traditional industries, such as copper mining, fishing, forestry, and wine, dominated fdi in Chile. High technology companies, which corfo believed could be especially useful in diversifying Chile’s economy, providing rapid growth, and creating highly paid jobs for skilled workers had bypassed Chile as a poten1 . Those involved in the initial planning included Mario Castillo, deputy director of strategic planning at corfo; Carlos Alvarez, director of investment and development; and corfo ’s executive vice president and CEO, Gonzalo Rivas. CHILE AND CORFO  121 tial site for investment. Intel’s 1996 decision to locate a major manufacturing plant in Costa Rica, rather than in Chile, particularly shocked Chilean government officials. The concern about moving Chile’s economy into new areas took on added urgency after the Asian crisis of 1997. Given Chile’s emphasis on commodity exports and the dramatic decline in demand for primary products in Asia, Chile’s economic growth rate fell from an average of almost 8 percent per year from 1987 to 1997 to less than 3 percent per year from 1998 to 2000 (Cadot, Casanova, and Traça 2002, 6–7). Copper alone, the basis for more than 40 percent of Chile’s exports, declined in price by 50 percent from 1997 to 1999 (Cadot, Casanova , and Traça 2002, 7). Seeing a strong need for economic diversification and still dismayed by Chile’s loss of the Intel plant, Castillo and his team proposed that corfo make a concerted effort to attract fdi specifically from high technology firms. corfo’s directors, the government’s Foreign Investment Committee , and President Ricardo Lagos himself agreed with the new plan. Months later, in November 2000, President Lagos traveled to Silicon Valley to give a talk at a conference organized by corfo and the Foreign Investment Committee for potential high technology investors. This conference , and Lagos’s talk, marked the launch of Chile’s new High Technology Investment Promotion Program.2 corfo differed from cinde and Pólo. Created in 1939 as an autonomous public development agency, by the late 1950s, in the context of a democratic regime that provided a low level of political security for Chile’s presidents, corfo lost its technocratic independence. From the late 1950s under democratically elected presidents, and continuing through the military years from 1973 to 1990, different governments used the agency to promote narrow, particularistic interests, such as providing economic assistance to political allies (Cavarozzi 1975, 356–60; Troncoso 2002, 2005). But with the advent of a new democratic regime in Chile in the 1990s, which brought with it stable coalitions, a disciplined political party system, a low level of partisan conflict, and solid margins of victory for winning candidates in presidential elections—all of which provided a much higher level of political security to Chile’s presidents—corfo underwent a restructuring, regaining its technocratic independence. Thus by the time corfo began its High Technology Investment Promotion Pro2 . In fact, Lagos had first announced the new program publicly during a visit to New York City several months before, but few noticed at the time. The Silicon Valley Conference attracted much more media attention. 122  HARNESSING GLOBALIZATION gram in 2000, it once again had a high level of technocratic independence. Unlike cinde and...