PrintSend to friend

Chile’s main economic indicators give Chilean companies every reason to be optimistic about the future, but according to Lorenzo Constans, president of the Confederation for Production and Commerce (CPC), there is a danger that internal and external threats could undermine Chile’s long-term growth.

Speaking at an AmCham breakfast at Santiago’s W Hotel on September 1, Constans warned guests about the possible repercussions of a global economic slowdown for Chile’s small, open economy. But an even greater threat, he said, is the country’s lack of “social capital” which has created a dangerously divided and distrustful society.

From the macroeconomic perspective, Chile is in good shape. Gross Domestic Product (GDP) is set to grow 6.5% this year while consumer spending will rise around 6.6% and investment 11%, according to the latest figures from the International Monetary Fund (IMF).

Exports and imports should rise 5.4% and 8.5%, respectively, while inflation is projected to fall to 3.2% in 2012 after averaging 4% this year. Unemployment, meanwhile, remains steady around 7.2%.

“The signs are very positive,” said Constans, noting that Chile’s rapid economic recovery after the global financial crisis and the earthquake on February 27, 2010, is based on its solid macroeconomic policies and well-capitalized banking system.

“Despite the recent increase in external debt, Chilean banks remain well financed with moderate levels of external financing and there is no lack of liquidity,” said Constans, quoting an IMF report.

In addition, Chile’s per capita GDP – around US$15,000 – is the highest in Latin America and it is one of the world’s top 20 economies in terms of foreign investment, receiving a total US$15 billion in 2010, up 17% from 2009.

Chile has pursued a policy of trade openness since the 1990s and, as a result, exports have grown to over US$70 billion. In particular, the Free Trade Agreement with the United States, which came into force in 2004, has had a huge positive impact on bilateral trade in the last seven years.

There are some challenges, particularly for the mining sector, including high energy costs and a shortage of trained workers, but overall Chilean businesses are optimistic about the rest of 2011 and 2012, said Constans.

The picture is not so rosy in the rest of the world though. A series of shocks including the earthquake in Japan in March, Standard & Poor’s downgrade of the US debt in August and the worsening EU debt crisis have the global economy teetering.

The risk is that this uncertain global climate could dampen demand for Chile’s exports and hurt its future growth, warned Constans.

“Not knowing how [the debt crisis] will end obviously has important repercussions for our country,” he said.

Still, there are things Chile can do to boost growth at home. These include implementing pro-competitiveness measures, removing barriers to entrepreneurship and diversifying exports. Employment and education are also key to long-term growth and more equitable income distribution, said Constans.

But first Chile must rebuild its social capital, which means fostering trust.

Chile is not the only country rocked by violent protests in recent months as social discontent in many countries has reached a tipping point, but the fact these have taken place in a scenario of strong economic growth demonstrates a lack of trust in institutions, government and private business, suggested Constans.

Chile is the “tip of the spear” in terms of the region’s development, he added, but some countries use their resources more efficiently than others because of their social capital, in other words the way people work together to resolve problems.

“We have to work as a team shoulder to shoulder, not elbowing each other… we need to put the good of the country above private or partisan interests,” said Constans.

Private businesses must work to rebuild the public’s confidence after recent scandals involving abusive credit practices and invest in the long-term well-being of their workers, said the CPC president.

In the field of education, companies should work closely with educational institutions to ensure students graduate with the skills needed in the workplace.

A well-educated workforce and higher productivity are essential if Chile is to achieve its goal of becoming a developed country this decade, but faced with the current gloomy global economic outlook its success depends more than ever on national unity and a sense of common purpose.

“Chile’s future is full of opportunities but we could miss out if we let uncertainty and mistrust take us off the path to a more inclusive society with better quality of life for all,” concluded Constans.

Julian Dowling is Editor of bUSiness CHILE