Economic Survey of Chile 2013

 

OECD Economic Surveys: Chile 2013

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Overview (in Spanish)

Speech in English and in Spanish by OECD Secretary-General Angel Gurría

Sound macroeconomic policies and a commodity price boom have yielded an enviably long phase of economic growth and job creation. The banking system is healthy, and the strong government financial position has been rewarded by low sovereign spreads and credit rating upgrades. The economy is projected to continue growing at a healthy pace. Historically-low unemployment has resulted in some labour-market tightness, but inflation remains contained. Strong domestic demand and weakening foreign markets have pushed the current account balance into deficit, which has been financed mostly through FDI, thus limiting the risk of capital flow reversals. Downside risks to growth could emerge mainly from a sharper fall in the copper price. Inflationary pressures could also be reignited by the tight labour market. Monetary and fiscal policies are well positioned to address these short-term risks, with the help of the floating exchange rate.

 

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Economic growth and recent policy reforms have increased employment, reduced poverty and lowered income inequality, though the latter remains high. Women and young people have entered the labour force in greater numbers, but their participation rates remain low compared to most OECD and Latin American countries. Attitudes towards women’s work and childcare commitments, as well as regulations regarding childcare provision, pose a barrier to female employment, though progress is underway. Overall education quality and access to higher education have improved, but early stages of compulsory schooling remain the priority. Among low-skilled workers, a high minimum wage and strong employment protection hamper access to the job market, and the public employment services and training systems are underdeveloped.

Growth has been driven largely by factor accumulation over the past decade, though there are signs that productivity growth has picked up recently. Business R&D intensity is low, innovative outputs have been weak and technological progress has suffered from a shortage of qualified STEM graduates. Policy settings have become more supportive of innovation recently, with reforms making it easier and faster to open a business and to access financing. Notably, Start-up Chile has attracted international attention as a way to foster entrepreneurship. Chilean firms have become more innovative, including in traditional sectors centred on comparative advantages and natural resources. The underused R&D tax credit has been made easier to claim, and its take-up is now increasing. Still, there is scope to further expand the innovation system, improve existing programmes and strengthen institutional coherence.

Strong economic growth with heavy reliance on natural resources has come at a cost for the environment, notably air quality and in some areas water availability. The use of renewable energy sources is high, yet this is limited primarily to hydropower, and energy needs are met to a significant degree by imported fossil fuels. Mechanisms to internalise environmental externalities and to promote green innovation and technology adoption have improved, but remain insufficient. Energy taxes do not adequately cover externalities, especially for energy use outside the transport sector and diesel. There is scope for the mining sector to continue reducing its large amounts of local emissions and soil contamination.

For further information please contact the Chile Desk at the OECD Economics Department.

The OECD Secretariat's report was prepared by Sean Dougherty, Aida Caldera-Sánchez and Carla Valdivia under the supervision of  Patrick Lenain. Research assistance was provided by Valery Dugain.

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