After eight long months of living in “crisis mode,” our economy is in plain deterioration. First it was the social outbreak of October 18 (18/0) and then Sars-Cov-2. In-between we had practically no time to rest.
In addition to the obvious difficulties the pandemic caused for practically all economic activities, the Chilean state has had to disburse a gigantic amount of resources, without even considering a strong drop in income.
Looking only at the largest numbers, at the end of March US$11.75 billion were injected, corresponding to the constitutional 2% allowance for emergencies. Then came the government-opposition agreement to implement a US$12 billion package. The latter prioritized the Emergency Family Income 2, which rose from CLP$60,000 to CLP$100,000 per capita for the most vulnerable families, the three-month extension of the Employment Protection Law, disbursing 50% of recipients’ average salary.
For business, the package included a state guarantee on deposits for loans to large companies, tax reductions for small and medium-sized enterprises (SMEs), instant depreciation of 100% for new investment projects, and hiring incentives.
Is it Good Enough?
The great disadvantage of the agreement hammered out by Finance Minister Ignacio Briones was that it was limited only to the political parties represented in Congress, falling far short of President Sebastián Piñera’s initial announcement to seek a broad national consensus among business, unions and civil society. Once again, an important part of the protagonists were marginalized from delivering their vision of the problem, and of course, the solution.
Undoubtedly, the coming crisis – which will surely add many of the demands and actors involved in 18/O and could already be seen in some recent mobilizations in Santiago – is very worrying. And even more worrying are recent outbreaks in various countries, including China, a key trading partner of Chile, and of course, the US and Brazil, which are also important for our country.
For this year, a 6.5% GDP drop is already projected, while unemployment reached 11.2% in March-May, the highest figure in 19 years. In the Metropolitan Region, unemployment reached 11.9%, reflecting the prolonged confinement of over eight million people.
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Involvement is Key
Considering the seriousness and depth of a crisis that will stay with us for a couple of years, and which will be marked by various electoral processes, I believe it is necessary to open a dialogue that includes other actors. Although the country’s big business Confederation of Production and Commerce (CPC) has formulated several proposals and actively participated in the emergency stage, it could not get through when it came to recent political decisions. And the central workers’ union (CUT) has objected to many bills under discussion in parliament, but, like the business community, has not received much political attention.
We must also pay attention to the ideas and proposals of unions and associations that are well aware of the reality in some sectors. Just a few days ago, a group of businesspersons, led by the director of think tank Icare, Heriberto Urzúa, released a document with 15 proposals for the reactivation the country will need.
Among them are increased labor flexibility and postponement of taxes, but with the commitment not to dismiss workers, deferred payment of taxes for entrepreneurs, implementing an aggressive infrastructure plan, digital transformation, deferred tax payments for companies linked to pro-employment or pro-investment policies, and others. Beyond the ideas raised, most valuable is the ability to start a broad debate that allows society to find broad agreements. And of course that political parties are able to listen to different actors.
What About the Middle Class?
Undoubtedly, most conflict – with unforeseeable consequences – looms in the middle class, which was hit hardest and received the least state support. True, SMEs have been able to postpone some payments, independent workers have access to very low interest loans like FOGAPE – with a 100% guarantee from the state – or are covered by the Employment Protection Law, still foregoing a significant part of their income. But close to a million are now unemployed. Clearly, support is insufficient, and it will hardly increase. In the case of independent professionals, SMEs linked to areas such as commerce, restaurants, tourism, culture, transport, and even medical services, the situation is disastrous.
Both the government and the wider political world should pay close attention to the middle class, the one they draw on during electoral periods and which is part of the story all candidates running for any office tell.
We are still in the complex part of the pandemic and efforts must be very strict to stop the spread of the virus. We are unfortunately among the group of countries with most infected, so necessary measures could be even stricter. However, we must also think about how we will face the near future, when we have to build, as a country, the “new reality,” because the “new normal” will not return.
Germán Silva Cuadra is an expert in corporate communications and a regular commentator on Chilean politics. His latest book is ‘No te reconozco Chile. Cómo entender al país que noqueó a la elite.’ Germán tweets under @gsilvacuadra.