“The Government’s economic strategy needs to change focus”: Andrés Solimano

The economist and president of the International Center for Globalization and Development (CIGLOB) He pointed out the need to “carry out active job creation policies and transfers to popular households to improve the social situation and have a more autonomous growth strategy.” He also expressed that the fiscal pact that is promoted by the ruling party “should not give in to all the pressures of the opposition and big business.” The expert said that one cannot expect great news in terms of employment and salary increases – despite the minimum wage of 500 thousand pesos – and warned regarding labor demands that “from a structural vision I do not see a change in the negotiating capacity of the working class in Chile.”

Hugo Guzman. Journalist. “The century”. Santiago. 12/22/2023. I would like to start with very precise questions regarding some variables of the economy. In 2024, will the Chilean economy grow 1%, 2%, less, will it be low growth? And how will that impact people?

The Chilean economy in the 2022-23 biennium will have grown on average (Gross Domestic Product) at a rate a little higher than one percent annually, which is far from being an adequate rate to satisfy the material needs and expectations of the population. The 2022-23 biennium has been dominated, economically, by the adjustment promoted by the Ministry of Finance and the Central Bank, which has raised the interest rate from August 2021 until a few months ago, making the cost of credit more expensive and cooling the economy. The fiscal and monetary adjustment has been aimed at generating fiscal surpluses and lowering inflation, which has been partially achieved. However, it is not so easy to move from an adjustment phase to a growth phase quickly and unequivocally.

What can be foreseen regarding the investment? Will it rise, will it remain stagnant?

Investment was affected by the increase in credit prices and there are sectors such as construction that have been faced with bankruptcies and lack of sales of already completed apartments and houses. Construction generates a lot of employment and moves input supply sectors such as cement, wood, iron, glass, electricity, etc. It is important that construction begins to move again. Business owners have also complained that they must attend to the approval of many permits. Investment is not so easy to reactivate without a direct boost from the State, but the State only invests between 10 and 15 percent of the total investment in Chile. We depend on the private sector to decide to invest, which depends on ethereal and fragile things like the state of trust and expectations.

Can we be optimistic for 2024 regarding employment and salaries?

The Government in the Budget Law proposes a growth of 2.5 percent for 2024 and this implies greater but moderate job creation. In 2023, employment has grown less than new entrants to the labor market, which has caused unemployment to rise slightly. This may not happen in 2024. Real wages will benefit from lower inflation in 2024, but it is difficult to expect very significant increases in a slow economy, without boosting demand for work and investment. On the other hand, the bargaining capacity of the labor sector is modest.

And inflation?

Inflation is falling and is expected to be closer to the Central Bank’s three percent goal in 2024. However, we must be attentive to possible shocks externalities of the price of oil and food due to instabilities and conflicts such as the war in Ukraine and the situation in the Gaza Strip. But in Chile there is no price-salary-price spiral.

It can be assumed that the bulk of the population and especially the poor sectors will continue to have family economic problems, the phrase “not enough to finish the month” will be repeated. This can hit middle socioeconomic sectors. It is assumed that nothing can be expected from the business community and the financial sector to address this, right? And does the Government have a way to help, even if it is specifically, focused? There is talk of taking administrative measures.

The Government’s economic strategy in its first two years prioritized achieving fiscal balance and lowering inflation. Now it needs to change the focus and grow more and create more jobs so that workers can improve their situation and that of their families. The Treasury’s bet is a fiscal pact with big business in the hope that they will invest more. It is a bet not exempt from various risks. Much of the initial tax reform has been abandoned. We are depending on the good will of big business to grow again. I also believe that we must carry out active job creation policies and transfers to popular households to improve the social situation and have a more autonomous growth strategy.

Now with the continuity of the current Constitution, can we expect the private sector to step up? Because they said that the constitutional process generated uncertainty and fears, but that ended.

It does not seem to me that the business community is going to invest much in the short term even if the constitutional uncertainty is resolved. It is necessary to lower interest rates further, reactivate bank credit, reduce the overstock of constructions completed but not sold and that the State also invests in complementary infrastructure. There may be investment in copper and lithium but with limited direct effects on other sectors of the economy. Unfortunately, natural resources are “enclaves” with low productive chains.

Will we see the 1% of the super rich paying more taxes, do you think the fiscal pact will positively advance?

It was announced that the proposal for the tax on the super-rich is being withdrawn, Minister (Mario) Marcel said recently. Perhaps after the result of the plebiscite, some will try to replace it, but I don’t see it as very likely. The fiscal pact, in my opinion, should not give in to all the pressures of the opposition and big business. There is talk of a pro-growth pact but it is a growth highly dependent on the private sector that also seeks, without saying it very explicitly, to relax environmental conditions and social impact.

And the pension reform, what is your view of what may come? In the end, can we be optimistic that pensions will rise?

I see a pension reform bogged down and blurred in the desire for it to be acceptable to the opposition sector in Parliament and to a large extent to be to the taste of the private pension industry. Except for an increase in the Universal Basic Pension, an increase in pensions from the contributory pillar is not so evident, although there are proposals in that direction. But there is no clear and convincing design in the State of an alternative pension system to the already worn-out and ineffective AFP system. Many years have passed and a real reform of the pension system has never been achieved. He lobby of pensions is very powerful and blocks any substantive change.

Is the economy and specifically the economic situation of the workers, of the people, one of the most pressing issues facing the country?

Certainly for workers there is a continuity of the labor relations model that has prevailed for decades in Chile. On the other hand, the Government managed to approve a readjustment of the minimum wage and the 40-hour legislation, although there are certain qualifications to be made to these achievements. But from a structural vision I do not see a change in the negotiating capacity of the working class in Chile, weakened since the time of (Augusto) Pinochet due to pro-business labor legislation and other factors. Furthermore, the functional distribution of income openly favors capital. It is a distinctive sign of the neoliberal model in Chile and in several other countries around the world, including advanced capitalist economies. A socially equitable economic model, which is still pending in a possible transformative agenda, must have a labor proposal different from the current one.