This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries. The economic situation and policies of Chile were reviewed by the Committee on 12 September 2022. The draft report was then revised in the light of the discussions and given final approval as the agreed report of the whole Committee on 16 September 2022.

Chile’s solid institutions have successfully delivered macroeconomic stability. This has helped to weather three major shocks. In 2019, widespread social unrest revealed deep-rooted discontent with economic and social inequalities. In 2020, the Covid-19 pandemic took a steep toll on lives and livelihoods, and led to the sharpest contraction of economic incomes in 40 years. In 2022, the Russian aggression on Ukraine and global supply shortages exacerbated already strong inflationary pressures, with rising prices pounding hard on many families. High prices of oil imports have worsened external accounts.

Chile’s economy recovered swiftly from the pandemic on the back of exceptionally strong policy support, which eventually led to a significant overheating of the economy. Inflation has risen amid buoyant private consumption, further aggravated by the Russian aggression on Ukraine. Monetary authorities have acted in a timely and decisive fashion to contain inflation, and fiscal policy is now consolidating. In the medium term, Chile’s fiscal rule could be further enhanced through a debt anchor and a well-defined escape clause. Significant underlying challenges will have to be addressed over the next years, including stagnant productivity and high inequalities. Strengthening competition, reducing regulatory barriers and spending more on research and innovation will be key priorities for boosting productivity and investment, while pressing social needs call for more attention to how incomes and opportunities are distributed, including through taxes and transfers. Expanding access to high-quality early childhood education would improve educational outcomes and productivity, while allowing more women to work. Environmental challenges and risks loom large, but also provide significant opportunities for the future. The current high fossil content of the energy matrix contrasts with Chile’s strong potential in renewable energy generation.

Chile has developed one of the most comprehensive social protection systems in Latin America. However, after the social unrest in late 2019, the pandemic has highlighted significant gaps in social protection, in particularly among informal workers. A key lesson emerging from the pandemic is the need for developing a better social protection system that does not differentiate between formal and informal workers. Ensuring some basic social protection coverage for all, including in pensions, health and unemployment insurance, while simultaneously reducing the cost of formal employment, would reduce labour informality. Unifying social assistance programmes into a single cash benefit scheme while increasing coverage and benefits and providing incentives to take up formal employment will be key to tackle poverty and raise job quality. These reforms would raise productivity and decrease inequality, two priorities and long-standing challenges.