Securing growth and tackling inequality remain key challenge as Chile emerges from recession

 

27/01/2010 - Chile, now on the path to becoming the OECD’s newest member, is emerging from recession relatively fast on the back of  government stimulus measures and a rebound in copper export prices, says a new OECD report.

 

But more effective competition, innovation and education policies will be needed for Chile to converge faster to OECD living standards and to reduce  poverty and income inequality, which remain high despite recent improvements.  The OECD’s latest Economic Survey of Chile says economic activity, after falling 1.8 % in 2009,  is expected to grow by around 4.1% this year and 5.0% in 2011.

 

“Chile has managed the crisis better than other small open economies ,” said OECD Secretary-General Angel Gurría. “Thanks to sound fiscal policies and good monetary policy management during the boom years, there was room for decisive stimulus measures which are now proving their worth.”

 

Because Chile has low debt and relatively healthy finances, it can afford to keep some of the fiscal stimulus measures in place this year to provide further support for domestic demand, the report says. If the recovery gains pace as expected, the stimulus could be further withdrawn in 2011.  But if the pick up in world trade runs out of steam and growth falters, the stimulus measures should be maintained for longer.

 

Once the upturn is under way, the job of raising living standards will be a priority. Chile’s per capita income has increased over the past two decades but still remains at less than half of the average of OECD countries.

 

The report says that additional action is needed to foster competition, entrepreneurship and innovation. This will help boost productivity which has stagnated over recent years. The recently introduced anti-cartel reform is welcome, says the report, but should be taken further, including by increasing the maximum fine.

 

Increasing the quality and equity of education will be key to improve the productivity of the Chilean workforce and reduce inequality. Better teacher training is required in order improve the quality and equity of education in Chile, the report adds. It welcomes the increase in funding for education of the poorest children and suggests using some of the extra resources to encourage good teachers to work in schools with high proportions of poor pupils.

 

The report also recommends some measures to tackle poverty and inequality. As an example, the amount and duration of unemployment benefit has recently been increased, but remains very low compared with OECD countries. After an evaluation of the current reform, this could be taken further, while restricting severance payments which are owed to workers on non-fixed contracts who lose their jobs. Such payments tend to encourage the hiring of workers on short-term contracts.

 

Chile should evaluate recent increases in education spending, including on pre-school education and on higher subsidies for poor students , and consider expanding those programmes that are found to be efficient. If higher tax revenues are needed to  fund social policies and improve education in the medium term, the tax base should be broadened by abolishing tax exemptions that are not efficient.


Chile signed an accession agreement to become the OECD’s first member in South America, on 11 January 2010. Speaking at the ceremony held in Santiago, Mr Gurría said membership would be mutually beneficial to the country and to the OECD.“The ‘Chilean way’ and its expertise will enrich the OECD on key policy issues,” he said. Chile has been engaged in a continuous effort to reform its economy. This experience will be an asset for the OECD.” (read the speech)

 

>> To obtain a copy of the OECD Economic Survey of Chile, journalists are invited to contact Sara Sreberny-Mohammadi at the OECD’s Media Division.

 

>> A summary of the report’s findings can be found at: http://www.oecd.org/eco/surveys/chile 

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

>> More information on Chile's road to membership
 

How to obtain this publication

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

 

 

 

 

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