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Wednesday, January 9, 2008

Chile and the OECD

Chile has a thriving and well-managed economy although income levels are only 40 per cent of the western average, according to a report from the Organisation for Economic Co-operation and Development that is likely to reinforce Chile’s case for joining the 30-nation group.

More efficient government spending on education and social programmes, success in tackling the "black" economy and getting more women and young people into work will be crucial to maintaining Chile's strong economic growth, according to a new OECD report.

The OECD Economic Survey also says public finances are robust, growth is strong, and inflation, despite having risen recently, remains low. But labour productivity compares poorly with many OECD countries. Boosting productivity will require more business innovation and improving the education levels of the workforce.

Chile's healthy public finances are allowing increased spending on education, healthcare and other social programmes. Although educational attainment levels of Chilean pupils compare well with other Latin American countries, they are generally lower than in OECD countries. The report argues that extra money alone will not raise educational standards or enrolment and graduation rates. It calls for more focus on the quality of education through, for instance, greater attention to students from disadvantaged backgrounds and additional training programmes for teachers and school managers.

Improving education and skills is also key to discouraging people from working in the informal or "black" economy. About 20% of Chileans aged over 15 and working at least 20 hours a week did not have a formal labour contract in 2003, the latest year for which figures are available, says the report. Streamlining business registration and tax procedures would reduce the number of enterprises operating informally while the labour code could made more flexible. At the same time, social security schemes should be enhanced to encourage firms and their workers to be part of the formal economy.

The percentage of women aged over 15 in the labour force has risen over recent years but remains relatively low at around 42%. Male participation in the workforce is about 73%. Increasing the number of women in paid employment would support Chile's long-term economic growth and help reduce poverty, the report says. It adds that further incentives could be provided by more flexibility in working time arrangements, adapting social security provisions and increasing publicly-funded child-care, especially for the poor. Policies to raise educational attainment would also help as participation is higher among better-educated women.

OECD countries have launched a drive to engage more closely with emerging economies worldwide. Chile is one of several countries, along with Estonia, Israel, Russia and Slovenia, which have been invited to open membership negotiations. OECD has also launched a process of "enhanced engagement" with major emerging economies including Brazil, China, India, Indonesia and South Africa, with a view to strengthening mutual links.

The OECD in May invited Chile to begin negotiations on becoming a member, a process expected to take at least two years and separate from Monday’s report.

The OECD report praised Chile’s strong economic growth – expected to be about 6 per cent next year – prudent fiscal policies and low, albeit rising, inflation. It also approved of the way it has been saving windfall copper revenue generated by record prices.

It highlighted important reforms to the pension system that the government of Michelle Bachelet, the president, has undertaken.

The report noted that a fifth of people over 15 who work more than 20 hours a week are in the informal economy. It was vital to change that to boost productivity and thus keep Chile growing sustainably.

Chile should also make labour rules more flexible and provide access to affordable child care to boost the number of women in the workforce from about 42 per cent now.

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