Remarks by Angel Gurría
Santiago, 25 November 2015
(As prepared for delivery)
Minister Valdés, Ladies and Gentlemen,
It is a pleasure to be back in Santiago, not only to present this economic survey of Chile but also to celebrate the fifth anniversary of this country's membership in the OECD. During this visit we will also move forward the preparations for our next OECD Ministerial Meeting, which Chile will chair at the beginning of June in Paris.
We are right now at something of a crossroads for the Chilean economy. Two years ago, when we presented our previous economic survey of Chile, the setting was still marked by the commodities boom, which had allowed the country to achieve a high level of growth and had generated broader fiscal manoeuvring room. In 2013 we were already witnessing the end of this super-cycle, and we anticipated a gradual decline in commodity prices, but we never foresaw that the drop would be so precipitous.
Chile is not immune to a reality that is affecting all its neighbours: a sharp decline in growth, in the wake of collapsing external demand. Given this context, it is now even more necessary to seize upon all those public policies that will allow us to return to the path of growth that is at the same time stronger, more inclusive, and more sustainable.
The government has undertaken an ambitious reform agenda aimed at improving productivity and, most particularly, ensuring that growth will be of benefit to all. Our report focuses squarely on those reforms and their importance for the Chilean economy. Let me indicate for you some of our main conclusions and recommendations.
Thanks to sound macroeconomic management, Chile has been growing at high rates over the past two decades, and it has made a significant dent in poverty levels. The soundness of its institutions and its solid macroeconomic management are now allowing it, in a less favourable context, to weather the storm more successfully than most Latin American countries.
Growth has slowed, but we are still talking about rates that other countries can only envy: we project a solid progression from less than 2% in 2014 to 2.2% this year, 2.6% in 2016, and a forecast 3.3% in 2017.
The credibility of the inflation target has allowed monetary policy to operate as a very useful buffer, so that the exchange rate has absorbed a large part of the shock and has softened the impact that falling copper prices have had on activity and employment, to the point where the current account deficit has actually been cut. Similarly, with its solid fiscal situation, the government has been able to inject significant stimulus into the economy during 2015, thus helping to shore up domestic demand.
These are important achievements. Yet Chile is still facing a number of structural challenges. If it is to achieve higher rates of growth and create further opportunities and well-being for its citizens, Chile must broaden its export base and integrate itself more thoroughly into global value chains, particularly in knowledge-based and value-added products. Although services represent only 14% of Chile's gross exports, they constitute 30% of value-added exports and account for more than half the inflows of foreign direct investment (FDI).
Improving productivity is no doubt the main challenge facing the Chilean economy if it is to continue to grow and to raise living standards. Productivity growth in Chile has been flat or even negative during the better part of the past decade. Despite the improvements of recent years in the regulatory and political framework, competition remains weak in various sectors. Restrictions on goods markets in Chile are still greater than the average for OECD members, especially in such areas as licences and permits. Overall investment in R&D, for its part, is still the lowest in the OECD area: 0.4% of GDP, compared to an OECD average of 2.4%.
To boost productivity, reforms in the areas of regulation and competition are essential. Those reforms will help to boost entrepreneurship and investment. At the same time, Chile needs to take maximum advantage of its economy's potential for innovation. Accordingly, we welcome the broad package of reforms that the government has been pursuing, in particular the Agenda for Productivity, Innovation and Growth, which will help to overcome many of the structural weaknesses in these areas.
Why do we want to increase growth and productivity? In order to give all Chileans opportunities for inclusion and development. We must strive for a productivity that is more inclusive. This will mean pressing ahead with the ambitious agenda for social progress and with concrete actions to reduce the enormous inequalities that have such an impact on Chile.
Across the OECD, the wealthiest 10% of the population has an average income level 10 times that of the poorest 10%, and that in itself is a hefty gap. Yet in Chile, this gap amounts to 27 times. Inequality in this degree is harmful not only for Chilean society and for the country's social and political stability, but also for the economy itself. At the OECD we have documented the negative impact that inequality has on growth, as well as its effects on health, access to high-quality jobs, educational achievements and many other aspects that condition well-being and opportunities.
For this reason, we hail the measures that the Chilean government is taking to promote inclusive growth, for example by reinforcing women's participation in economic activities and in the workforce. Measures such as the investment in affordable, high-quality childcare services or the creation of the first Ministry for Women, which will help raise awareness about discrimination and combat it, are welcome.
The recent tax reform is another very important step in reducing inequalities. The measures introduced to limit deductions, remove exemptions, increase the effective taxation rates and, above all, combat evasion and enforce tax compliance will serve to create a system that is not only more efficient but fairer as well.
The progress that Chile has made in facilitating access to education is important for combating poverty and inequality. Today, nearly all children and youngsters between five and 17 years of age are in school. Yet the quality of education still leaves much to be desired, as reflected in our PISA report. A very significant proportion of young people lack the basic skills – in mathematics, reading comprehension, etc. – they need to prosper in the labour market.
At the OECD, we estimate that if the education reforms allow all pupils in basic education to acquire the minimum required level of skills by 2030, this would increase growth by half a percentage point of annual real GDP. If, in addition, the opportunity to acquire basic skills were made universal for all secondary school students, the cumulative effect on real GDP would be around 8.5% to 2030. Expanding and strengthening the vocational education and training (VET) system in Chile would also contribute to this objective.
Minister Valdés, Ladies and Gentlemen,
The reforms that the Government of Chile is pursuing will be of great benefit to this country's entire economy and society if they are rigorously implemented. The OECD recognises the efforts that the government is making and the progress it has achieved in many areas, thanks to which the country is in a better position than in the past to cope with a highly adverse global context.
As an organisation focused on good governance and best practices, we also support the measures that President Bachelet is sponsoring to restore trust in institutions, through initiatives that will bring greater transparency and integrity to the doings of government.
The report that we are delivering today testifies to these efforts, and includes recommendations that we hope will be useful for continuing on the right path. The OECD will remain at your side, with conviction, loyalty, and enthusiasm, helping you to address your challenges for promoting inclusive and sustainable growth and productivity that will create opportunities for all Chileans.
You can count on our support for Chile in designing, promoting and implementing better policies for better lives!