From hyperinflation and debt crisis to an independent central bank

Chile's monetary base roughly multiplied tenfold between 1970 and 1972 as government spending outran revenue, driving annual inflation to around 600% and setting a pattern of fiscal dominance over monetary policy that persisted through the 1970s. A second shock followed in 1982: as the peso's crawling peg became unsustainable amid a global debt crisis and plunging copper prices, Chile's external debt had swollen past 17 billion dollars, the currency's sharp depreciation rendered much of the banking system insolvent, GDP fell 11%, and unemployment approached 20%, forcing the government to negotiate a standby arrangement with the IMF and a rescheduling of its foreign debt. Seeking to prevent a repeat of either episode, Chile's military government, in its final weeks, promulgated the Constitutional Organic Law of the Central Bank in October 1989, granting the Banco Central de Chile formal autonomy from the executive under its first independent council, led by Andres Bianchi. The central bank itself has described that 1989 law, controversial at the time precisely because of its origins, as the turning point that let it build the credibility behind Chile's subsequent three decades of comparatively low and stable inflation.