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President Sebastián Piñera and OECD Secretary General Angel Gurría

In May 2010, Chile became the OECD’s second Latin American member after Mexico.

The invitation to join the organization was a reflection of Chile’s progress including its sound institutions, solid macroeconomic framework, and the measures it has adopted to liberalize trade, enhance investment and strengthen social policies.

“Chile’s admission to the OECD is testimony to the extraordinary economic and social transformation it has accomplished over the past two decades,” said the OECD’s Secretary General, Angel Gurría, during a visit to Chile in April, his first since the country’s accession.

But the challenge today is to maintain this momentum to improve the well-being of the Chilean population even further, said Gurría.

“Notwithstanding past achievements, there is still a lot to do. Income per capita in Chile remains well below the OECD average, and inequality and poverty are still high,” he told government officials at the Finance Ministry.

With a Gini coefficient of around 0.5, the degree of inequality in household disposable income in Chile is the highest among OECD countries.

A new report by the OECD titled “Maintaining Momentum: OECD Perspectives on Policy Challenges in Chile,” points out some areas where Chile needs to improve.

Chile has weathered the shocks of the global recession and last year’s earthquake well, but the key challenge now is to achieve a strong recovery while keeping a lid on inflation, said Gurría.

“In the coming months, strong domestic demand - fuelled by reconstruction spending and booming international commodity prices - threatens to stoke inflation,” he said.

To control inflation expectations in the medium-term, the government must continue to withdraw monetary and fiscal stimulus, he said.

A second area of focus is productivity growth.

Chile’s labor productivity, measured in terms of GDP per hour worked, is the worst in the OECD, behind Mexico, Poland, Estonia and Turkey.

“To catch up, the country needs more aggressive competition policies, to promote efficiency and innovation,” said Gurría.

Recent legislative reforms in this area are a step in the right direction, but the government must now ensure efficient implementation, he said.

Reducing regulatory red tape for business start-ups and lowering entry barriers in the service sectors is also important, said Gurría, adding that the recent reform that reduces the time needed to set up an enterprise from 27 to 16 days is a “key step forward.”

Thirdly, Chile has much to gain from improving women’s participation in the labor market, said Gurría.

The female labor participation rate is still well below the OECD average: in 2009, only 47 percent of women in Chile were employed, compared to 62 percent across the OECD.

The government has taken important steps to improve the supply of childcare services and extend the maternity leave period, which are measures that have proven effective in other OECD countries.

“But in order to really tackle the roots of low female labor force participation, the government needs to invest more in crèche facilities and address high severance payments,” said Gurría.

Fourthly, higher productivity growth will only be possible if Chile develops a well-educated and highly-skilled workforce, said the OECD Secretary General.

“Impressive progress in promoting higher educational attainment has been made over the past two decades. The challenge is now to ensure that all children have access to high-quality education,” he said.

Gurría praised government efforts to attract highly qualified candidates into the teaching profession, through scholarships for students with good results, and higher salaries for the best teachers.

“Our experience in the OECD suggests that this is the right way to go,” he said.

In successful school systems like those in Finland or Korea, the teaching profession is highly regarded and the best students often become teachers, he noted.

Progress in these and other fields will enable Chile to continue moving forward to reduce poverty and inequality, two of the biggest challenges this country still faces.

Chile is already a “best-practice” country in many public policy areas, but it has the opportunity to learn from the best practices of the world’s most advanced economies, said Gurría.

The OECD could even serve as a trampoline for Chile to enter the G20 and other organizations that coordinate policies between countries, he added.

The OECD’s first South American member has a “very bright future” ahead but “it must not rest on its laurels,” concluded Gurría.

Chile needs to improve policies in areas such as equal opportunities, access to education, female participation in the workforce and productivity, but the OECD’s experience can help it to do so.

This new report offers a policy roadmap in that direction.

Julian Dowling is Editor of bUSiness CHILE