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News > Chile

Worsening Inequality for Chilean Working Class Before Elections

  • Chile is going through a historical process in which it must face head-on certain aspects about its economic model, political governance and social contract.

    Chile is going through a historical process in which it must face head-on certain aspects about its economic model, political governance and social contract. | Photo: Twitter/@LSE_LACC

Published 12 May 2021

The political framework in which the country is immersed is not sufficient to continue to increase productivity and promote a better labor market.

Regarding Chile's economic situation, much has been said about how the country is one of the fastest-growing economies in Latin America, which has allowed it to reduce poverty. However, according to World Bank data, more than 30 percent of the population is economically vulnerable, facing extreme income inequality.

Many witnessed how, amid the pandemic, the currencies of many Latin American countries depreciated against the dollar, but Chile, thanks to copper exports, managed to boost the value of the Chilean peso.


Chile's Economy To Contract by 6 Percent in 2020

However, in the viscera of the country, many relate the bloody reality they live in since precariousness and inequality have been gradually growing so that at the end of 2019, this situation led millions of Chilean citizens to erupt in protests and embark on a future that remains uncertain.

Now, Chile is going through a historical process in which it must face certain aspects of its economic model, governance, and social contract.

Despite having managed to reduce poverty for a while and to achieve economic progress, the political framework in which the country is immersed is not enough to keep productivity growth and shape up a more solid labor market.

Likewise, inequality is worsening. If anything was evident from the 2019 and 2020 protests, the socioeconomic system was quite vulnerable, which is why the protesters demanded a change in the country's social and political direction.

As of today, Chile's productivity and growth are stagnant, and this has been a fact that has aroused the concern of many, as addressing it involves analysis on what kind of reforms the nation needs.

In the context of the pandemic, Chile's economy has plummeted to the point of experiencing its worst recession in decades.

By 2020, GDP contracted by 6.0 percent due to a relaxation of containment measures, which allowed for a partial recovery. However, before the elections, the economic situation in Chile is that millions of jobs have been lost, and this situation has affected trade workers and women the most.

The hotel industry and agriculture also experienced a decline, and with it, the middle class was further weakened. In addition, the fiscal deficit increased to 7.5 percent of GDP in 2020, the largest in recent decades.

Despite the authorities drawing on fiscal reserves, this move did not help public debt, which rose from 18 percent in 2019 to 33 percent in 2020.

This leads to forecasts that poverty will increase from 8.1 percent to 12.2 percent, creating a dire situation for almost 800,000 people.

On the other hand, this scenario of uncertainty is expected to dampen private investment and increase domestic demand.

Although some sectors remain optimistic, World Bank forecasts also indicate that "it is unlikely that Chile will reach pre-pandemic levels."

According to the economist of S&P Global Ratings, Elihan Oliveros-Rosen: "One thing is the economic growth in Chile, which has been improving rapidly, and another is the composition of economic growth (...) We see an economic recovery in Chile, but with more inequality."

According to the experts, many citizens could cope with the pandemic with jobs they could do from home, but those who could not lost their jobs.

In the case of Chile, only half of the 2 million jobs that had been lost have been recovered. Moreover, not everyone has the benefit of being able to withdraw money from their pension fund, as this only applies to those who have a formal job.

According to data from the WorldInequalityDatabase, directed by the French economist Thomas Piketty, Chile is among the most unequal countries in the world.

The economist of the Fundación Sol, Marco Kremerman, assures that half of the workers in Chile have a salary that is less than the average of 400,000 pesos, which is equivalent to 550 dollars when the cost of living in the country is much higher compared to other countries in the region.

According to Kremerman, "what has happened in this pandemic is that, even though some productive sectors have even generated more profit than a year before the pandemic, households have become poorer."

For Kremerman, before the elections, there is no optimistic vision because he states: "It is interesting to analyze from the perspective of those in power. For the financial markets, whether Wall Street or other markets, the question is whether or not the Chilean model that has generated so much wealth for the richest, the same one that has us among the most unequal countries in the world, is maintained or not," such that, for this economist, if the Convention does not bring the change demanded by 78 percent of Chileans who voted to replace the Constitution with a new one, what would happen is "the risk—again—of social outburst, of political crisis."

For the former Minister of Finance and professor of economics at the Pontificia Universidad Católica de Chile, Rodrigo Valdés, his most significant doubt is "how much growth will there be? (...) What we do not know is where the potential growth of the economy is, to which he adds, "We do not know yet. This is also connected to the fact that we can fall into a negative spiral of low growth, unemployment, social discontent, more disorder, more protests. Or a positive spiral, in which the economy recovers and the process of writing a new social contract, which is always stressful, turns out well."

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