Problems Facing the Chilean Economy
I realize that my last few posts have been extremely pro-Chile and have essentially highlighted the positive aspects of Chile’s economic situation. I admit to having a strong affection for the country which may have influenced my work to this point, HOWEVER, there is not a country in the world that doesn’t face economic challenges and problems and I have decided to be fair and take a lot at some of the issues Chile is currently dealing with.
Chile ranks 64th in the world in terms of GDP per capita, this is largely due to the degree of income inequality in Chile. While the country generates a large amount of revenue, data suggests it is not being spread equally amongst Chilean citizens.
According to the CIA World Factbook, Chile ranks 16th in a country comparison to the world based on scores taken from the Gini index. The Gini coefficient measures the degree of family income inequality in a country. Out of all 34 countries in the OECD ( Organization for Economic Co-operation and Development), Chile comes in dead last in terms of income distribution. A study was conducted in 2010 by the Ministry of Planning and Cooperation in Chile to examine the socio-economic situations of Chilean households called the CASEN survey. According to the survey: in 2009 “…the 10 percent richest Chileans is equivalent to 40.2 percent of the country’s total income while that of the poorest only represents 0.9 percent. In 2006, the income of the richest represented 38.6 percent of the total income while the poorest reached 1.2 percent” (Encuesta Casen, 2011). One major argument as to how wealth should be redistributed is to raise taxes on corporations and privatize the copper industry so that revenue generated by the nation’s number one export may be shared more equally amongst the population. There are no indications that that this will happen anytime soon.
If you know anything about the economy in Chile then you know that copper is key. Chile is the number one producer of copper in the world, the export of which accounts for one-third of government revenue. Aside from copper the Chilean economy relies heavily on other exports – according to this article from MercoPress, exports increased by 30% in 2010. Consequently, this is an economy that is very vulnerable to changes in prices of commodities. That being said, the threat of economic turmoil as a result of the recent recession is very real for Chile. However, to date Chile has not been affected as a result of sound fiscal policy. Having experienced high copper prices for the past decade the government was able to set aside $20 billion in savings, some of which was distributed in a stimulus package which helped to fend off the effects of the recession.