Chile's economic performance since the mid 1990s has been outstanding. Several reasons account for this success. The strong initial position of the economy was a crucial asset. Broad consensus on economic matters helped a lot. This paper argues that the institutional setup was key to this success. Of course, there are many reasons why events unfolded as they did (the people, the ideas at the time, the external conditions, the internal economic situation, the institutional setup, etc.). We study in the paper how changes in the institutional setup may have constrained behavior during the transition, and also discuss how it may help (or hinder) the preservation of such economic performance in the future. For this we use the models from political economics and analyze how the institutional constraint contributed to the transition. The paper concludes that the institutional setup was important. Policy making involves the interplay of what might be termed big and small institutions. Running through much of the literature on economic reform is the recognition that it is not enough to get certain policies right; it is also important to get institutions right. The technocratic approach to this problem is the creation of independent agencies: independent central banks, autonomous regulatory agencies, independent judiciaries, and so forth. The Chilean process is remarkable in its concern to appropriately design both big and small institutions so to provide an adequate framework for decision making by the private sector