Challenges and prospects for economic recovery in Chile: Back to basics

(Machine translation of original release issued in Spanish)

PRESS RELEASE from LarraínVial Asset Management
July 2024

At the W Hotel in Las Condes, on July 10, the XX LarrainVial Asset Management Seminar was held: Returning to the path of growth, a space where experts and academics from various areas focused on the economic stagnation experienced in Chile, through a panel made up of Sergio Urzúa, economist from the University of Chile and doctor in Economics from the University of Chicago; María Olivia Recart, economist from the University of Concepción and Master in Economics from Georgetown University; Cristián Warnken, director of País Humanista at the San Sebastián University, professor of literature, writer and communicator. For his part, Ladislao Larraín, general manager of LarrainVial Asset Management and partner of LarrainVial, gave the words at the beginning of the event, while José Manuel Silva, Investment Director of LarrainVial Asset Management, moderated.

In order to explain the current economic stagnation in the country, the three speakers agreed on the need to implement structural reforms that strengthen institutions, improve governance and promote a more stable and predictable economic environment. Sergio Urzúa, an economist at the University of Chile, began by highlighting that, between 1989 and 2013, Chile experienced notable economic growth, taking the country to a level of development unprecedented in the region. During this period, per capita income experienced a significant jump, positioning Chile as a model of success in Latin America. “Since 2013, we have seen a worrying slowdown, and now we face the challenge of regaining that momentum,” he said.

However, according to Urzúa, since 2013, the positive trend in economic growth showed a considerable slowdown due to institutional deterioration, governance problems and international crises. The lack of sustained growth and current structural problems, according to the expert, present a significant challenge for Chile's future economic development. This is reflected in the daily lives of citizens, with a decrease in the real income of the population between 25-35 years old with higher education, if the figures from 2006 to 2022 are compared, forcing the majority to live with their parents due to economic precariousness.

A comparison with countries such as South Korea, Ireland and Singapore, which managed to develop in a similar period, highlights the opportunities missed by Chile. “To reverse this trend, it is necessary to start acting, setting goals. Before in Chile they set goals. Currently, these do not exist,” he assured.

María Olivia Recart, economist at the University of Concepción, highlighted the need to confront economic stagnation and take advantage of opportunities for sustainable growth. “We have a much lower potential GDP than we should have. Our growth is not what we want. "We want to be an equal country, but we don't know how to get there," he said.

According to Recart, lack of investment, due to rigid permit laws and the environmental assessment system, is a major obstacle. "Investment is stopped in our country because we do not have the necessary permits. Unblocking these laws is necessary, but not sufficient to grow again," he said. Additionally, he highlighted the gap in women's labor participation, arguing that a 10% increase in female participation could increase GDP by 11%. "Women's career paths are greatly affected by the first child, translating into the need for public policies that facilitate work-life balance."

For the speaker, education is another key point, highlighting the results of the PISA 2022 report, which show that 33% of the Chilean population does not have minimum skills in reading, mathematics and science.

For his part, Cristián Warnken, director of País Humanista at the San Sebastián University, reflected on the political and social challenges facing Chile, remembering key events and influential figures. Citing Dante Alighieri, he contextualized the feeling of loss that Chile has experienced in recent years. The expert assured that both political sectors, right and left, had already lost their path prior to the social outbreak, contributing to a political and social crisis.

In this context, he highlighted the importance of finding an inspiring figure, exemplifying Andrés Bello, to return to our roots, who can guide the country towards a new stage of growth and stability. “We have an instinct for the notion of order that is in popular common sense, and that has saved us for the moment. But we need to recover intellectually and reconnect with that order,” he commented.