IPS-English ECONOMY-CHILE: On the Road to Joining ”Rich Man's Club”
 
Date: Fri, 08 Feb 2008 15:04:34 -0800

 
Cecilia Vargas

SANTIAGO, Feb 8   (IPS)  - Although the Chilean government is upbeat
with respect to the country's chances of joining the Organisation
for Economic Cooperation and Development (OECD) -- the so-called ”rich
man's club” of nations -- experts say there is still much to be done
before that actually happens.

In May 2007, the OECD Council at ministerial level adopted a resolution
to open discussions with Chile, an observer since 1997, towards full
membership status. And in December 2007, the OECD gave the green light
for the start of accession talks with Chile and four other prospective
new members -- Estonia, Israel, Russia and Slovenia.

In November 2004, the government of Ricardo Lagos (2000-2006) formally
applied for full membership of the OECD, which was founded in 1961
and groups 30 of the world's most influential economies, including
emerging countries like Mexico and South Korea.

The economic projections at that time were promising. Chile was pulling
out of a recession into which it had fallen after the 1997 Asian financial
crisis, and gross domestic product was growing steadily, to 6.1 percent
that year.

In 2006, the current government of Michelle Bachelet unveiled the
biggest budget in Chilean history: 22 billion dollars. High prices
of copper -- Chile's main export -- and the depreciation of the dollar
have helped sustain such a large budget.

But that was not sufficient. The accession process depends on a series
of specific evaluations of areas like the financial and insurance
markets, private foreign investment, and environmental and labour
policies.

Encouraging OECD reports in 2003 and 2005 talked about macroeconomic
solvency, a high level of transparency, and efficient anti-corruption
measures. But today, with Chile's increasingly open market, experts
are more sceptical.

”The degree of openness of the Chilean economy could mean greater
vulnerability. In the eyes of the OECD, that is an improvement, but
now we will see to what extent this is true,” Hugo Fazio, an economist
with the non-governmental Centre for National Studies on Alternative
Development (CENDA), told IPS.

According to Fazio, the Chilean economy is caught up in an ”irrational
liberalisation process” that has led to a lack of protection for national
production -- a problem that he said ”will not improve in the least
with Chile's admission to the OECD.”

”There is an imbalance in the economy because the dominant way of
thinking is that the role of the state should be reduced. However,
the conduct of banks, for example, accentuates crises rather than
easing them,” said Fazio, a former vice president of the Central Bank.

But economist Tomás Flores at the Freedom and Development Institute,
a conservative think tank linked to the rightwing National Renewal
Party (PRN), is optimistic with regard to the possibility of Chile's
admission to the OECD.

”Without a doubt it would be good for Chile,” he told IPS. ”It would
help discipline internal regulation, because free trade treaties (signed
by the country) have revealed flaws in our national legislation.”

No major modifications of the country's foreign investment laws have
been adopted, even though the OECD recommended that they be considered.

”It is necessary to strengthen investment security, so that the rules
of the game are not changed for private companies, because that entails
a small or large expropriation of the investment they have made,”
said Flores, referring to the conflict between the government and
companies that operate toll roads under concession in the capital,
triggered by the hikes in fees for drivers.

Finance Minister Andrés Velasco was also confident after a visit
to OECD headquarters in Paris last week, when he said that ”we foresee
no major obstacles for Chile's admission,” and set a tentative timeframe
of two years for the country to become a full member of the group.

But there are pending tasks, such as improving environmental policies,
one of the aspects that have given the government its biggest headaches.

The environmental performance review that the OECD experts submitted
to former president Lagos in 2005 has heavily influenced the policies
of his successor Bachelet.

One of the review's main criticisms referred to the lack of an institutional
framework for environmental questions. 

Chile currently has a National Environmental Commission (CONAMA),
headed by lawyer Ana Lya Uriarte. The government announced that the
draft laws for creating an environment ministry and an environmental
oversight superintendency would be introduced to Congress in the second
half of this year, which means they would not actually be operating
until 2009.

”We are moving very slowly in terms of the environment; we have a
minister (Uriarte) without a ministry and no progress is being made
towards the creation of the superintendency. It would seem that the
free market is leaving aside this issue as it grows,” Francisco Pinto,
in charge of the natural resources programme of the Fundación Terram,
a local environmental group, commented to IPS.

There are other concerns as well, like the overexploitation of the
country's fisheries and the uncontrolled growth of the salmon farming
industry.

”The salmon industry is growing without any controls, and has outstripped
the capacity of the fjords, dangerously diminishing the biomass,”
said Pinto.

Another issue is the paper pulp industry, which has come under fire
after two major scandals. In 2005, pollution of the Cruces river caused
a massive die-off of black-necked swans, fish and local flora in a
nature sanctuary in southern Chile, and last year the Mataquito river
was polluted in central Chile, killing hundreds of thousands of fish
and putting local fishermen out of work.

Both disasters were caused by the CELCO wood pulp firm, which belongs
to one of the country's most powerful families, the Angelinis.

The incidents highlighted the shortcomings in the work of the national
environmental authority, CONAMA, when it comes to issuing permits
for paper pulp plants.

Although some progress has been made, such as the approval of the
Native Forest Law, which took 15 years to make it through Congress,
there is still a long way to go.

The 2005 OECD environmental performance review said that Chile would
have to ”further improve environmental integration in fast-growing
primary sectors (mining, tree planting, aquaculture) and in the energy,
agriculture, and transport sectors,” and ”review the tax system to
build in more environmentally-friendly incentives, following examples
set in the OECD work on taxation and the environment.”

It also recommended ”developing more proactive climate change responses
and more environmentally conscious energy strategies,” and ”ensuring
convergence with OECD countries environmental standards and practices.”

The OECD is made up of Austria, Australia, Belgium, Canada, Czech
Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland,
Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand,
Norway, Poland, Portugal, Slovak Republic, South Korea, Spain, Sweden,
Switzerland, Turkey, the United Kingdom and the United States.


*****
+ OECD (http://www.oecd.org/home/0,3305,en_2649_201185_1_1_1_1_1,00.html)


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