Economic Survey of Chile 2010: Executive summary

 

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The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic Survey of Chile, published on 27 January 2010.

 

Contents

 

Sound fundamentals and strong macroeconomic management have provided a buffer against the global economic recession, which nevertheless hit Chile both through a sharp deterioration in its terms of trade and the collapse of world trade. There was room for decisive macroeconomic stimulus thanks to sound monetary policy and prudent fiscal policy during the boom years. This, together with the rebound in copper prices -- Chile’s main export -- and the revival of global trade, has contributed to a turnaround in activity. The economy is now coming out of recession, yet unemployment is projected to remain initially high and inflation is likely to stay low. Macroeconomic policy should thus remain supportive in the near term. Assuming that the recovery becomes more robust, as projected, policy stimulus should be gradually withdrawn so as to set growth on a medium-term sustainable and non-inflationary path.


The medium-term macroeconomic framework is strong and receives wide support. The economy benefitted enormously from the macroeconomic policy framework implemented by successive governments. Still, there is room for further improvement in the medium term. The financial system is generally well regulated and has thus far held up well, but a better- coordinated approach to financial conglomerates and stronger supervision of non-banks may be needed. Additional strengthening of the insurance element of the unemployment benefit system, in tandem with lowering severance pay, would provide more effective protection for the unemployed and would enhance labour market flexibility. Broadening the tax base by reducing inefficient tax expenditures could help obtain the tax receipts necessary to finance the likely increase of public spending in the medium- term, notably on education, pensions and social programmes. It would also make the tax system more progressive.


Additional reforms to foster competition, entrepreneurship and innovation are needed to stimulate productivity. Chile’s productivity appears to have stagnated in the past decade, thus weighing down on medium-term growth. Recent competition policy reforms that strengthen enforcement of cartel law must now be implemented effectively. In particular, the National Economic Prosecutor should receive sufficient resources and the relatively low ceilings on fines should be reviewed. Enhancing consumer protection would help improve the functioning of product markets by fostering price transparency. Facilitating entrepreneurship could also have beneficial effects on productivity and economic dynamism; for this purpose, regulatory “red tape” burdening start ups should be reduced and bankruptcy procedures could be further simplified. Recent initiatives to promote innovation are also welcome, but the objectives for the sectoral clusters should be accompanied by appropriate monitoring procedures and sunset clauses for public support to be adequately implemented.


The quality and equity of primary and secondary education have to be improved further. Notwithstanding impressive progress in school enrolment, much remains to be done if Chilean children are to reach OECD standards in learning outcomes. Better qualified teachers and improved initial teacher education and training are key. More equal conditions for schools to compete are needed and the government has started to address this with the prohibition on selecting pupils up to sixth grade. The increased school voucher for poor pupils is an important opportunity to help these children improve their results, which would enhance both the average level and the equity of outcomes.


 

How to obtain this publication

 

The complete edition of the Economic Survey of Chile is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations. 

 

Additional information

For further information please contact the Chile Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat's report was prepared by Nicola Brandt, Cyrille Schwellnus and Rodrigo Paillacar under the supervision of  Patrick Lenain.   Research assistance was provided by Roselyne Jamin, Jehan Sauvage and Valéry Dugain.

 

 

 

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