Tomorrow’s Chile

Antonio Montes. Director of International Development. IE Business School

1 October 2013

Challenges lie ahead for the party that wins the elections set to take place in Chile in November, challenges that date back to the country’s dictatorship. 

The first round of the upcoming presidential elections in Chile for the 2014-2018 mandate will take place this November, and the second round, if necessary, will take place on December 15. The candidate for the center left coalition (“Nueva Mayoría”), Michelle Bachelet, seems to be the favorite to win against center right candidate, Evelyn Matthei. These suppositions are based on polls and are surprising given that over the last few years Chile has become an example of economic growth, particularly under Presidente Piñera, which seems to bring into question the development that has prevailed in recent years.

We are talking about a country with an open economy that is both stable and dynamic, and where unemployment currently stands at no more than 7%, with GDP at around 5%,. It is one of the greatest capital markets in Latin America and the second largest country in the region after Brazil. Chile has achieved considerable improvements in its infrastructures in recent years, which has helped to modernize the country, making it more attractive for foreign investment. Moreover Chile is becoming a world hub for entrepreneurship. It boasts a large number of free trade agreements, an economic association agreement with the EU, forms part of the recently formed Pacific Alliance along with Peru, Colombia and Mexico, and is also a member of the Trans-Pacific Alliance.

Nevertheless there are signs of growing unease in part of the Chilean society. The famous student rebellions could be indicative of the situation, although there are similar things happening in many countries around the world, promoted through social networks, as a protest against the work being carried out by governments, political parties, and against all establishment power in general.

The new government that will emerge after the election will find a Chile in which part of society wants it to resolve a series of longstanding problems that date back to the time of Chile’s dictatorship. We are talking here about the recognition of the rights of the indigenous population, and the violation of human rights and inequality between different layers of Chilean society.

It is true that in Chile all these issues are much more anecdotal that in many other countries in the Latin America region, but given the greater level of education among Chile’s population there is a certain sector that attaches far greater importance to them and demands a response.

Nevertheless the big challenge that the next Chilean Government will face be how to increase productivity, which in the last 20 years has only grown by an average of 1%. In order to achieve this, it will have to focus on the following:

- A policy of greater saving and public investment, which would result in the improvement of key aspects, such as the need to bring down energy prices.

- The design of a policy oriented to efficiency and innovation, increasing spending on R&D, which is currently very low - some 0.4% of GDP, - compared with other countries. It is also important to put down taxes on foreign investment in sectors other than mining.

- Improvement in the education system. Students demand free education, but the real challenge lies in improving the quality in order to have a better qualified and skilled workforce which is more specialized, and which can thus help achieve sustained growth of productivity, which will translate into greater competitiveness both of businesses and of the Chilean economy in general.

We are talking about a great country that has already done a lot of work, but which is still feeling the impact of years of dictatorship and therefore needs to meet remaining challenges in order to make the final thrust that will permit it to become one of the world’s developed countries.

Published on the Via@IEBusiness blog of ElPais.com

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