Remarks by Angel Gurría
Santiago de Chile, Chile - 26 February 2018
(As prepared for delivery)
Minister Eyzaguirre, Ladies and Gentlemen,
It is a pleasure to be back in Santiago to present the 2018 economic survey of Chile. I would like to thank Minister Eyzaguirre, Ambassador Claudia Serrano and the Chilean authorities for their support in the preparation of this report.
When we presented our previous economic survey in November 2015, Chile faced the end of the commodity boom, weaker global trade, and a prolonged growth slowdown. Today, after three years of growth of around 1.8%, we project stronger growth of around 2.9% in 2018 and 2019. According to our forecasts, Chile will benefit from more favourable global economic conditions and stronger trade. The rebound in copper prices will also support short-term growth.
Chile has weathered the storm more successfully than most Latin American countries, thanks to a responsible and consistent macroeconomic policy. The credibility of the inflation target and the adequate monetary policy have been key, while fiscal rigour has allowed a progressive consolidation supporting domestic demand. Higher social spending on education and health will have long-term gains for more inclusive growth. All this, in addition to a series of major structural reforms, has made it possible to improve the quality of life of Chileans over the past decades.
Despite these achievements, Chile continues to face major challenges. Let me highlight some that we consider crucial.
Firstly, productivity, which remains stagnant at relatively low levels, urgently needs to be boosted. Labour productivity remains at 50% of the OECD average. In fact, productivity growth has been on a downward trend in many sectors of the Chilean economy, and the volume of investment has declined for four consecutive years.
The recent improvements in the competition framework, the 2014-18 Productivity Agenda, the reforms of the electricity sector, and the new network of local business centres are significant steps in the right direction. However, restrictions on goods and services markets are still greater than in OECD countries, especially in terms of licences and permits. This continues to drag on efforts to increase productivity.
The second major challenge is to promote more inclusive growth. Despite recent gains, levels of inequality remain high in Chile. According to our estimates, the gap between the wealthiest 10% and the poorest 10% in Chilean society is 65% higher than the OECD average. And this must be viewed against a background in which 30% of workers are employed in the informal economy and consequently under more vulnerable conditions.
A third challenge, closely related to the previous one, is to improve the skills level of a large proportion of the Chilean population. The latest OECD Survey of Adult Skills (PIAAC) reveals that more than one in two adults in Chile had low literacy skills in 2015, compared to the OECD average of less than one in five.
Lastly, Chile also needs to improve its international competitiveness and diversify its exports. As the survey highlights, between 2009 and 2017 the volume of Chilean exports grew at an average annual rate of 1.1%, far below the OECD average and also that of Latin America (5.0% and 4.2% respectively). And 97% of gross exports of goods still consist of raw materials and manufactured products based on natural resources and activities that require fewer skills.
Boosting productivity, improving competitiveness and diversifying the export base are essential to continue promoting inclusive growth and reduce inequalities. To move ahead on this path it will be important to build on recent reforms in regulation and skills, as well as to invest in improving transport and digital infrastructure.
A greater involvement of all stakeholders in the design of regulations and strengthening ex-ante and ex-post evaluations would help improve and simplify procedures. Technical assistance and mentoring for SMEs and young firms would help raise entrepreneurship and reveal potential exporters in manufacturing and services sectors.
Higher investment in R&D and knowledge-based capital is also needed to support innovation and productivity. Improving tax incentives for R&D and fostering collaboration between universities and the private sector will be crucial.
However, Chile must do more if it wants to realise the vast potential of its people. Strengthening the quality of vocational education and training (VET) and training the unemployed will be key to creating opportunities in the marginalised segments of the labour market, such as women and youth. Reducing labour market segmentation, by increasing access to formal jobs and unemployment insurance is fundamental.
And of course it is essential to continue promoting an ambitious agenda for social progress. Increasing transfers to the poorest households, continuing to promote quality teaching, promoting early education, continuing to support access to childcare services, and tackling equity and sustainability issues in the pension system are priority issues. You must keep focusing on them.
Minister Eyzaguirre, Ladies and Gentlemen,
President Bachelet placed inclusive growth and productivity at the centre of Chile’s and the OECD’s agenda when your country chaired our Ministerial Council Meeting in 2016. Chile has progressed in this direction, but there still remains much to do. We sincerely hope that this report provides valuable recommendations on the many remaining challenges, and that it will be useful to the new government of President Piñera with whom we hope to work closely again for the well-being of all Chileans.
Thank you very much!
OECD work on Inclusive Growth