SANTIAGO (Reuters) - Chile must spend to combat steep income inequality despite softening economic growth, the Organization for Economic Co-operation and Development said on Wednesday.
The organization lauded Chile’s monetary policies as buffers to a potential slowdown in demand for its top export copper, but urged it to tackle income inequality, ranked the highest among the OECD’s 34 member countries.
“As the Chilean economy advances, equity and well-being more broadly would benefit from the further development of high quality education and efficient, well-evaluated social protection programs,” the OECD said in its report on Chile. “More could be done to eliminate distortions and fight tax evasion,” Paris-based OECD added.
The policy proposals echo those floated by presidential frontrunner Michelle Bachelet, who has made education and tax reforms the key planks of her bid to return to La Moneda palace. Chileans are widely expected to elect center-left Bachelet, who governed as Chile’s first female president from 2006 to 2010, in the November17 presidential election or a likely December 15 run-off.
Stable, booming Chile has long been an investment darling in Latin America. But massive student protests that erupted in 2011 to demand free and improved education shook the political and business elite, and the 2013 presidential campaign has been dominated by debate over how the country can become ‘developed’.
Chile has enjoyed an economic boom on the back of high copper prices and avid demand from main metals consumer China, but a gloomier global outlook and slowing investment are seen weighing on its growth this year and next.
The economy is expected to expand 4.2 percent this year, down from the OECD’s previous view of 4.9 percent. It is then seen picking up steam to clock 4.5 percent growth next year, though that is also below the OECD’s former forecast of 5.3 percent.
Small, export-dependent Chile’s GDP grew 5.6 percent last year.
Since then, growth has slowed “due to a deceleration of investment, as major mining and energy projects approached completion, and a weaker external trading environment,” the report said. “Consumer confidence has also trended down in 2013.”
The OECD highlighted that there are “no obvious signs of excess demand.” Some economists say ebullient consumer spending in Chile, where malls are usually filled to the brim, is unsustainable.
Should demand from top trade partner China lag further, monetary and fiscal policies will be able to respond, according to the report, which was put together before the central bank surprisingly cut rates to 4.75 percent last week.
Reporting by Alexandra Ulmer