1 / 14

C HILE INITIAL CONDITIONS , 1990

C HILE INITIAL CONDITIONS , 1990. 17 Years Military Rule. Over Heated Economy Rate of Inflation 30% Annualized Import Growth 30% 40 % of Population Below Poverty Line. General Perception of Unfairness, Too Much Inequality Private Sector Fear of Populism

susane
Download Presentation

C HILE INITIAL CONDITIONS , 1990

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CHILE INITIAL CONDITIONS, 1990 • 17 Years Military Rule. • Over Heated Economy • Rate of Inflation 30% • Annualized Import Growth 30% • 40 % of Population Below Poverty Line. • General Perception of Unfairness, Too Much Inequality • Private Sector • Fear of Populism • Low Confidence and Expectations on New Economic Team.

  2. A NEW APPROACH: GROWTH WITH EQUITY • Break Populist Cycle of Center Left Governments. • Commitment to Budget Surplus. • Pre-Pay Public Debt. • Tax Reform & the Fight Against Poverty • Labor Legislation Reform. • Tripartite Agreements. • External Tariffs Reduction and Open Regionalism . • Deepening the Capital Market.

  3. Table 1 Chile´s Economic Perfomance 1990- 1993 • Annual Rate of Growth 7.8 • Domestic Saving Over Gdp 22.0 • B of P Deficit in Current Acc. 2.5 • Total Investment Over GDP (real) 27.8 • Productivity Increase per year 4.1 • Real wage Increase, per year 4.6 • Employment, annual rate of growth 3.5 • Government Savings over GDP 4.3 • Budget Surplus over GDP 1.7 Source: Banco Central de Chile (2001) “Indicadores Económicos y Sociales de Chile 1960-2000”.

  4. Table 2 Social Expenditures 1990- 1993 • Government Social Expenditure, (*) 48 • Govt. Expenditures in Public Health (*) 62 • Govt. Expenditures in Education (*) 24 (*) Accumulated Growth 1990 – 1993 Source: C. Pizarro,et al (1996)”Social and Economic Policies en Chile´s Tradition to Democracy”, a book piblished by UNICEF-CIEPLAN.

  5. Table 3Trayectory of Main Economic Indicators During the Aylwin Administration 1990 1991 1992 1993 • Growth Rate 3.7 8.0 12 7.0 • Inflation 27.3 18.7 12.7 12.2 • Rate of Unemployment 7.8 8.2 6.7 6.5 • Poverty Rate, % 39  28 of Population • Extreme Poverty, % 12.9 7.6 of Population • Budget Surplus 0.8 1.6 2.3 2.0 • Public Debt Over GDP 43.0 37.4 30.9 28.7 Source: Banco Central de Chile (2001) “Indicadores Económicos y Sociales de Chile 1960-2000”.

  6. THE POLITICAL ECONOMY OF REFORM • Consensus Politics. • Ad- Hoc Coalition Building for Each Policy Package. • Weakening of Opposition to Policies.

  7. THREE CASE STUDIES : • Deciding When To Spend Political Capital: The Key Reform Upfront • First 100 Days : Focus On Most Difficult Key Reform Only. • Tax Increase: • Solidarity in Economic Policy • Legitimize Economic Model • Continuity and Change: Opportunity for Compromise • Tie Tax Increase to Specific Social Expenditures.

  8. Policy Package Increase Domestic Price. Petroleum Stabilization. Fund. Reduce Government Expenditures. Reduce Military Expenditures: Share Sacrifice. Labor Unions Agreement to Lower Real Wages. Lower Interest Rate. Energy Saving Measures. Constituents in Favor Financial Markets . Consumers Private Sector Civilian Population Labor Unions Business Private Sector. Environmentalist. RESPONSE TO UNNEXPECTED SHOCKS: The Gulf War and The Price of Oil.

  9. Policy Package Lower External Tariffs Tax Capital Inflows Open Capital Outflows Fiscal Compensation : Tax on Gasoline Constituents in Favor Consumers Export Sector Financial Institutions Private Sector, environmentalists Passed in 48 hours. GOOD USE OF CHANGING OPPORTUNITIES: CAPITAL INFLOW AND “ENCAJE”

  10. SUCESS AND FAILURE: CHILE • Shock Absorption Capacity: Reaction to Volatility in Capital Flows. • Policy Response: • Reduce Public Debt • Structural Budget Surplus • Flexible Exchange Rate • Inflation Targetting • Restriction to Capital Inflows • Unilateral Opening to Trade • Free Trade Agreements

  11. ROLE OF INSTITUTIONS. • Upgrade Quality of Institutions: RULES. • Autonomy Central Bank • Independent, Non- Corrupt Judiciary • Congress: Rules for Government Expenditures • Transparency • Corruption: T.I. Index • Campaign Finance • Civil Service Modernization • Conclusion: Modernization of the State Upfront, Within First Generation Of Reforms.

  12. 3º GENERATION REFORMS: INNOVATION CAPACITY • World Bank Study: Chile Performance Below Average in Innovation. • Firms Doing More of the Same • Underinvestment in Research and Development. • No Technological Adaptation • Venture Capital: No Projects • Industrial Policies Trauma • Dispersion in Government Programs • No Strategic Dialogues • No Clusters

  13. DEVELOPMENT LESSONS • Rules of Thumb for Shock Absorption • Public Savings • Low Public Debt • Budget Surplus • Flexible Exchange Rate • Inflation Targetting • Local &Regional Govt. Expenditures • Budget Rules • Sequencing of Reforms • Growth With Equity, Not Just Growth

  14. DEVELOPMENT LESSONS • Institutional Change: First Generation Reform • Crisis: Opportunities for Additional Reforms • Invest in Cooperation With the Opposition • Art of Packaging Policy Decisions: ad-hoc coalitions • Innovation : How to Achieve Continuous and Endogenous Increases in Productivity.

More Related