Chile’s reform pledge to quell protests questioned by economists

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Analysts in protest-hit Chile have questioned whether reforms announced by President Sebastián Piñera will be enough to quell the outbreak of unrest as looting and vandalism continued for a sixth day.

Mr Piñera this week offered an increase in wages, social payments and subsidies on energy and medicine as he apologised to Chileans for a “lack of vision” in tackling pent-up frustration.

Local economists said the concessions by the billionaire former businessman, estimated to cost about $1.2bn a year, risked being insufficient.

“The package goes in the right direction, but it is still small,” said José de Gregorio, a former central bank governor. “We are living through a social earthquake so it should be treated as such. Reconstruction, bringing back confidence and harmony — that’s costly.”

He estimated that rather than the roughly 0.4 per cent of gross domestic product that Mr Piñera’s package represents, the situation merited spending closer to 1 per cent of Chile’s $300bn economy.

Eduardo Engel, an economist ranked in 2016 as the country’s most admired public figure acknowledged Mr Piñera’s “change of tone and acknowledgement of major shortcomings in public policies” but also said the scale of the package fell short.

With a manageable budget deficit of just 2 per cent of GDP and a relatively low public debt-to-GDP ratio of about 25 per cent, economists argue that Chile has room to satisfy many of the protesters’ demands.

Such a stimulus could help to offset any hit to economic activity if there were further strikes after the stoppages called by unions on Wednesday at some of Chile’s biggest copper mines. At the moment GDP growth is expected to rebound from about 2 per cent this year, having hit by lower copper prices, to as much as 3.5 per cent in 2020.

One question is over how costly the consequences might be if the government is unable to defuse the public unrest and investor concerns grow that a centre-right coalition could be replaced by a populist administration in the next presidential elections in 2021.

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