Chile is still a model for Latin neighbors

By Andres Oppenheimer

Chile’s image as Latin America’s star economy has been battered lately by images of violent student protests, but new economic data — including a decline in poverty rates announced last week — suggest that the so-called “Chilean model” is still very much alive.And judging from what Chilean President Sebastian Pinera told me in a telephone interview last week, it is not only alive, but booming.

Chile’s latest economic results “put us in the No. 1 place in Latin America,” he told me. Two years after the devastating earthquake that shook Chile in 2010, the economy has grown by 6 percent a year for the past two years, exports have grown by 20 percent, inflation has remained at 3 percent and, most importantly, poverty and inequality rates have dropped significantly, he said.

According to the newly released figures of Chile’s CASEN poverty census, supervised by the University of Chile and the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), poverty declined from 15.1 percent of the population in 2009 to 14.4 percent today, and extreme poverty from 3.7 percent to 2.8 percent over the same period.

“We are happy, but not satisfied,” Pinera said. “We have recovered our country’s poverty reduction capacity after poverty had been increasing during the last three years of the previous government. That’s good news.”

Countering opposition critics who minimized the latest poverty figures, arguing that the census methodology should be updated, Pinera said that the new data are significant precisely because CASEN has been using the same methodology over the past 22 years.

“What’s most significant are the new figures on extreme poverty,” Pinera said. “The 2.8 percent of the population figure is the lowest in the history of this indicator.” He said the main reason for the poverty reduction was the creation of 700,000 new jobs, and a three-tier government poverty reduction program known as “Ethical Family Income.”

Under the program, poor families get a sum of cash if they are below the poverty line, an additional sum if they carry out certain duties such as sending their children to school and meeting vaccination schedules, and a third sum if they can show certain “achievements,” such as if their children get better grades in school.

Asked about another opposition criticism, that poverty should have fallen more considering Chile’s 6 percent growth rates over the past two years, Pinera said: “I would tell critics that I agree with them that I would have liked poverty to fall more, but I can’t help remembering that during their term in office poverty not only failed to fall, but increased.”

He added, “Look, the world is in crisis: Europe is in recession, the United States is stagnant, Asia’s giants are slowing down, Argentina and Brazil are in a profound economic slowdown, and Chile has managed to grow by 6 percent over the past two years. It’s the country with the highest growth rate in Latin America and the OECD” group of industrialized nations.

Is Pinera exaggerating Chile’s economic performance? Juan Carlos Feres, a senior ECLAC poverty expert, told me that Chile’s latest reduction in extreme poverty is “statistically significant.” Chile has reduced poverty from nearly 40 percent in 1990 to today’s 14.4 percent, more than any other country in the region, he said.

Former Chilean President Ricardo Lagos, a Socialist Party leader during whose term Chile registered its lowest poverty rate ever, told me that “anything that implies a poverty reduction is good news, although the figure is very modest.”

Lagos added: “We can’t say that we’ve found a panacea. Our per capita income is much higher than in 2006, and yet we have a bigger percentage of poor than in 2006. We must have done something wrong between 2006 and now.”

My opinion: Looked at from afar, and especially compared with its neighbors, Chile is doing very well.

Granted, Pinera may be taking too much credit for Chile’s success story, which has been largely the work of left-of-center governments in the 1990s and early 2000s, and his claim that Chile is the fastest growing economy in the region is questionable (Panama and Peru are growing faster, according to ECLAC’s figures.)

But looking at the big picture, and setting aside Chile’s internal political fights, Chile’s export-oriented policies, insertion into the global economy and, above all, steady economic course over the past twenty years have done much more to reduce poverty than Latin America’s populist leaders who proclaim themselves champions of the poor.