Chile’s Economy Has Survived COVID-19, but Discontent Is Still Simmering

Chile’s Economy Has Survived COVID-19, but Discontent Is Still Simmering
A man and a boy walk past graffiti against AFPs, Chile’s pension system, in Santiago, July 22, 2020 (AP photo by Esteban Felix).

The coronavirus pandemic will likely push Latin America into its worst-ever recession, with the region’s economy expected to shrink by more than 9 percent in 2020, according to the International Monetary Fund. But in a part of the world with few economic bright spots, Chile is forecast to perform relatively well, with a 7.5 percent contraction this year and growth of 5 percent in 2021, which would be one of Latin America’s more vigorous economic recoveries.

At first glance, this is surprising, as Chile is among the most open economies in the region and is sensitive to volatility in commodity prices, which have largely declined this year because of COVID-19. Chile’s resilience is due to a decades-long, cross-party commitment to prudent macroeconomic policies. This includes maintaining a balanced budget and saving the excess income from exports of copper, rather than using it to finance lavish public spending that has caused other commodity-dependent economies, like Argentina and Ecuador, to fall into costly debt traps. As a result, Chile has built a reputation among creditors and international financial institutions as a model emerging market economy, which has allowed it to spend liberally during the current crisis.

In a sign of Chile’s privileged status among lenders, the IMF recently extended to Chile access to its Flexible Credit Line, which, unlike the organization’s other loan programs, is not conditioned on fiscal belt-tightening. IMF Managing Director Kristalina Georgieva said Chile deserved the $24 billion line of credit because it has a “track record of implementing prudent macroeconomic policies.”

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