Chile must combat income inequality, despite outlook -OECD

Reuters

* OECD cuts Chile growth outlook for 2013, 2014

* Growth seen ebbing on lower mining investment

* Group urges improved education, social programs

By Alexandra Ulmer

SANTIAGO, Oct 23 (Reuters) - Chile must spend to combatsteep income inequality though economic growth will be lowerthan previously forecast for this year and next, theOrganization for Economic Co-operation and Development said onWednesday.

The organization lauded Chile's monetary policies as buffersto a potential slowdown in demand for its top export copper, buturged Santiago to tackle income inequality, ranked the highestamong the OECD's 34 member countries.

"The challenge going forward is to ensure that thetremendous economic performance is shared among all Chileans,"said the OECD Secretary-General Angel Gurria, a former Mexicanfinance minister. "More could be done to eliminate distortionsand fight tax evasion," the OECD's report on Chile added.

The policy proposals echo some floated by presidentialfrontrunner Michelle Bachelet, who has made education and taxreforms the central planks of her bid to return to La Monedapalace. Chileans are widely expected to elect center-leftBachelet, who governed as Chile's first female president from2006 to 2010, in the Nov. 17 presidential election or a likelyDec. 15 run-off.

That said, Bachelet has indicated she wants "to worktowards" free education. The OECD says making higher educationfree for all would be "regressive," as affluent students wouldreceive the same benefits as underpriviledged ones.

Stable, booming Chile has long been an investment darling inLatin America. The Andean country boasts the highest per capitaincome at more than $20,000 in Latin America, excluding theCaribbean.

But massive student protests that erupted in 2011 to demandfree and improved education shook the political and businesselite, and the 2013 presidential campaign has been dominated bydebate over how the country can become 'developed'.

The OECD recommended Chile's labor market be more inclusive,especially for women and young people, and said there was scopefor the mining industry to continue to reduce "its large amountsof local emissions and soil contamination."

MINING BOOM SLOWS

Chile has enjoyed an economic boom on the back of highcopper prices and avid demand from main metals consumer China,but a gloomier global outlook and slowing investment are seenweighing on its growth this year and next.

The economy is expected to expand 4.2 percent this year,down from the OECD's previous view of 4.9 percent. It is thenseen picking up steam to clock 4.5 percent growth next year,though that is also below the OECD's former forecast of 5.3percent.

Small, export-dependent Chile's GDP grew 5.6 percent lastyear.

Since then, growth has slowed "due to a deceleration ofinvestment, as major mining and energy projects approachedcompletion, and a weaker external trading environment," thereport said. "Consumer confidence has also trended down in2013."

The OECD highlighted that there are "no obvious signs ofexcess demand." Some economists say ebullient consumer spendingin Chile, where malls are usually filled to the brim, isunsustainable.

Should demand from top trade partner China lag further,monetary and fiscal policies will be able to respond, accordingto the report, which was put together before the central banksurprisingly cut rates to 4.75 percent last week.

The Paris-based OECD is a forum of 34 mostly rich nations,with Mexico and Chile the only Latin American members. It issuesa survey every 18 months on its members.

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