2010 OECD Economic Surveys: Chile 2010

image of OECD Economic Surveys: Chile 2010

OECD's 2010 survey of Chile's economy. This edition focuses on four key issues currently challenging Chile: overcoming the crisis; strengthening fiscal policy; fostering productivity growth, and improving the quality of Chile's schools. The survey finds that Chile is now emerging from the crisis and that the financial system has held up well, but that some areas of regulation and the fiscal framework need to be strengthened.  Chile needs to enhance productivity growth, broaden innovation policy beyond basic research, and improve the quality of education.

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Assessment and recommendations

The economy of Chile has performed strongly since the early 1990s, establishing a track record of robust growth, rising living standards, well contained inflation and recurring budget surpluses. This enviable outcome owes a lot to the sound macroeconomic framework implemented by successive governments. However, despite its strengths, the economy was not immune to the global financial and economic crises. As a small open economy relying on exports, particularly of copper, Chile was hit hard by the meltdown of international trade and the plunge in commodity prices, which exerted negative effects on domestic demand and activity. The government rapidly introduced counter-cyclical policies and, with the help of a rebound of copper prices, the economy is coming out of recession. Once the upturn is under way, the challenge will be to return to a path of rising living standards on a sustainable basis. Although income per capita on a purchasing power parity basis has increased sharply over the past two decades, it remains at only 44% of the OECD average. To foster convergence, key policy reforms require further enhancing product market competition, improving the conditions for entrepreneurship and innovation and improving the quality of education. Despite fast growth of per capita GDP and a reduction in poverty, income inequality, as measured by the Gini coefficient, has not declined markedly over the past 20 years and remains very high by OECD standards, notwithstanding some recent improvement. Sustained growth will need to be accompanied by the right social policies to further reduce poverty and improve income distribution. Against this background the key challenges discussed in this Survey are:

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