Maintaining Momentum: OECD Perspectives on Policy Challenges in Chile

 

Remarks by Angel Gurría, OECD Secretary-General

4 April 2011, Santiago, Chile

Minister Larraín, Ladies and Gentlemen,

It is a great pleasure to be here again — my first visit to your country since it joined the OECD in May 2010. The date of Chile’s accession was actually very well timed, because it enables us to celebrate the OECD’s 50th anniversary together and work side by side in building the next 50 years.

Having Chile as a member is very important for the OECD: it is a young and dynamic country with very useful experience and fascinating policy approaches. As the OECD’s first South American and second Latin American member, Chile gives our Organisation a renewed content, greater development sensitivity and growing global reach.

Chile’s admission to the OECD is testimony to the extraordinary economic and social transformation it has accomplished over the past two decades; and other OECD countries should learn from its practices and policy approaches. But with 50 years of experience and knowledge, the OECD also has much to contribute to Chile’s drive to improve its public policies.

The publication we are launching today, whose Spanish title is “Mejores Políticas para el Desarrollo: Perspectivas OCDE sobre Chile” [Maintaining Momentum: OECD Perspectives on Policy Challenges in Chile], will give you a taste of the type of assistance our Organisation can provide. I would now like to make a few comments on this study.


Maintaining momentum: the new challenge

The English version of the publication is called “Maintaining Momentum”, and for good reason. Chile has performed very strongly over a considerable period of time. Sound institutions, a robust macroeconomic framework, and the measures it has adopted to liberalise trade, enhance investment and strengthen social policies have all paid off in the form of a significant improvement in living standards.

The challenge today is to maintain the momentum, prolong the effects of structural reforms, and improve the well-being of the Chilean population even further. And notwithstanding past achievements, there is still a lot to do. Income per capita in Chile remains well below the OECD average, and inequality and poverty are still high.

President Piñera’s government has already started to address these challenges. The government’s goals of 6% economic growth each year, attaining the income level of a developed country by 2018 and eradicating poverty, provide an ideal flight path. The OECD will lend its full support to Chile to help it achieve these highly ambitious objectives.

“Maintaining Momentum” summarises our initial policy recommendations. It provides a comprehensive review based on the experience of OECD Member countries in areas where Chile could improve. It ranges from macroeconomic policies to structural reforms, from boosting growth potential to promoting equality and green growth.

Let me share with you some of the main conclusions and recommendations contained in this book.

1. Non-inflationary growth: a fundamental balance
Let’s start with growth. Chile has weathered the shocks of the global recession and last year’s natural disasters very well. This success is largely due to its excellent macroeconomic policies and responsible crisis management. The key challenge now is to achieve a strong recovery, while preserving price stability.

This is a delicate balance to strike: in the coming months, strong domestic demand —fuelled by reconstruction spending and booming international commodity prices —threatens to stoke inflation. The government must continue to withdraw monetary and fiscal stimulus, to keep medium-term inflation expectations well anchored.

2. Productivity growth: the sine qua non
Meeting the government’s ambitious growth targets will require more vigorous productivity growth.
Chile’s labour productivity, measured in terms of GDP per hour worked, is the worst in the OECD, behind Mexico, Poland, Estonia and Turkey. To catch up, the country needs more aggressive competition policies, to promote efficiency and innovation.

The recent reform of competition legislation is an important step in the right direction. But it is crucial that the government now ensures efficient implementation.

Reducing regulatory red tape for business start-ups and lowering entry barriers in the service sectors will also be important. In this respect, the recent reform that reduces the time needed to set up an enterprise from 27 to 16 days is a key step forward.

3. Greater participation by women
Third, Chile has much to gain from improving women’s participation in the labour market. The female labour participation rate is still well below the OECD average: in 2009, only 47% women in Chile were in employment, compared to 62% across the OECD. 

In this area, the Chilean government has taken important steps to improve the supply of childcare services and extend the maternity leave period. Measures of this kind, which have proven effective in other OECD countries, can encourage women to enter the labour market.

But in order to really tackle the roots of low female labour force participation, the government needs to invest more in crèche facilities and address high severance payments.

4. Quality education for all
Fourthly, Chile needs to develop a well-educated and highly-skilled workforce. Only then will higher productivity growth be possible. Impressive progress in promoting higher educational attainment has been made over the past two decades. The challenge is now to ensure that all children have access to high-quality education.

The government is making major efforts to attract highly qualified candidates into the teaching profession, through scholarships for students with good results, and higher salaries for the best teachers.

Our experience in the OECD suggests that this is the right way to go. Successful school systems like those in Finland or Korea have very diverse features. But they all share a key attribute: the teaching profession is highly regarded, and the best students often become teachers.

Progress in these and other fields considered in this study will enable Chile to continue moving forward with determination to reduce poverty and eliminate inequalities, two of the biggest challenges this country still faces. Let me now end with a few words on this topic.


Reducing inequalities: education + social policy

Although poverty levels in Chile have dropped considerably in recent years, inequality is still pervasive. With a Gini coefficient of around 0.5, the degree of inequality in household disposable income in Chile is the highest among OECD countries.

Increasing cash benefits through the new Ethical Family Income (Ingreso Ético Familiar – IEF) programme can make an important contribution to reversing this trend. And OECD experience with the benefits and challenges of conditional social transfer programmes could be very useful to Chile when setting up and implementing this programme.

But at the same time, reducing income inequality will require better integration of the poor into the labour market. Employment rates among the poorest 10% of households are still unacceptably low: only 30% are employed, compared to 70% of the richest 10%.

The training and job-search requirements that will be attached to the IEF could become an important tool for bringing the poor into employment. But it will need to be underpinned by strong public employment services. In this area too, Chile can learn a great deal from OECD experiences.

Lastly, it is essential to redress educational inequalities. In Chile, educational results, as measured by our student achievement test PISA, are highly dependent on a student’s socio-economic background. Doing more to give poor children access to high-quality education could make a real difference.

Over the past few years, Chile has developed very interesting policy measures to confront this challenge, such as increasing the voucher subsidy for poor children. It is right to devote more money to this important project.

OECD experience also shows that early childhood care and education can be very effective tools to break intergenerational inequality cycles. After rapidly expanding the number of nursery and kindergarten places in recent years, it will be very important for Chile to ensure high quality in this early childhood education.

Ladies and Gentlemen:
Although I cannot claim that “my brain is forged in the tongues of prophecy”, as the great Huidobro said in his poem “Altazor”, I nonetheless foresee a very bright future for Chile. Although it is already a “best-practice” country in many public policy areas, it must not rest on its laurels. There are other important policy domains, such as equal opportunities, access to education, female labour force participation or strengthening productivity, where Chile needs to improve. The OECD’s experience can help it to do so.

This publication “Maintaining Momentum” aims to draw on this accumulated experience to help strengthen Chile’s growth and promote sustainable development benefiting all Chilean people.

I am sure that our collaboration on this publication, and in the future, will continue to strengthen our partnership. As Henry Ford once said, “Coming together is a beginning; keeping together is progress; and working together is success.”

Let us continue along this path and keep working together to achieve “better policies for better lives”.

 

 

 

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