Global Issues
ECONOMY-CHILE: Workers Nervous, Despite Anti-Crisis Plan
The four billion dollar economic stimulus plan announced by Chilean President Michelle Bachelet has majority support, but trade unions are still worried about mass layoffs.
'The package of measures is necessary, but provides much less than what is needed' to curb the effects of the global economic crisis, Carmen Espinoza, president of the Labour Economy Programme (PET) and general secretary of the Academy of Christian Humanism, a private college, told IPS.
In Espinoza’s view, the government plan does not guarantee the protection of workers’ labour rights, which are more vulnerable at times of crisis. 'The government needs to converse more with labour organisations and with associations of small and medium businesses,' she said.
The alarm was set off by Chile's month-to-month economic activity index, IMACEC, which registered a mere 0.1 percent increase in November 2008 -- the lowest in over six years -- as reported by the Central Bank on Monday.
In a message to the nation Monday night, Bachelet announced 11 measures, which will bring the government’s structural surplus target down from 0.5 percent of GDP to zero this year.
Most economists welcomed the magnitude of the initiative, although some expressed concern with respect to the effective fiscal deficit of 2.9 percent of GDP to be generated this year by the package of measures, which will mainly be financed by copper windfall earnings that have been saved up over the last few years.
The measures were also well-received in political circles Tuesday, although representatives of the right-wing opposition alliance and members of the Communist Party said they were 'tardy.'
Business leaders described the measures as 'sound,' 'timely' and 'well-designed.'
'Confronting the international crisis will be the priority for my government this year,' said the socialist president, who heads the centre-left Coalition of Parties for Democracy, and whose term ends in March 2010.
The plan is aimed at generating the conditions for achieving two to three percent GDP growth in 2009, said Finance Minister Andrés Velasco.
The package includes 700 million dollars for public works, which will raise public spending from 5.7 to 10.7 percent this year.
By paving roads, remodeling schools, repairing and building health clinics, upgrading stadiums and expanding housing programmes, the government hopes to generate 100,000 new jobs, directly and indirectly.
When the school year starts in March, the government will provide a one-time 40,000 peso (62 dollar) stipend per child to more than 1.7 million households -- the poorest 40 percent of the population.
Unemployment insurance will also be expanded.
In addition, the revenue stamp on business loan operations will be eliminated for 2009 and a reduced stamp will be reinstated in the first quarter of 2010. That will mean a loss of 628 million dollars in tax revenue for the state coffers.
This year, the monthly income tax paid by small and medium companies will be slashed 15 percent, and the tax paid by larger companies will be cut seven percent.
In addition, the subsidy for reforestation will be increased to generate jobs in that sector, and 2010 tax refunds for individuals will be paid early, in the second half of this year, for which the state will disburse 220 million dollars.
Bachelet also announced that she will introduce a draft law to encourage the hiring of 18 to 24 year olds. Under the proposed mechanism, the government would provide young workers with 20 percent of their wages and the employer would receive another 10 percent. The estimated cost of the measure is 102 million dollars a year.
One of the most controversial aspects of the plan is the one billion dollar capitalisation of the state copper company CODELCO, to sustain the firm’s investment plans, given the drop in the price of copper, Chile’s main export product. Some analysts expressed suspicions that the funds were to compensate losses.
In this case, Congress will have the last word, because the proposed funds for CODELCO will be included in a draft law to modernise the administration of the company.
The government will also provide 100 million dollars to the governmental production incentive fund, CORFO.
'Every peso of the new investment will be spent in a timely, efficient manner,' said Bachelet.
Economists are now pressuring the Central Bank to lower the benchmark interest rate, which currently stands at 8.25 percent, to reactivate the economy, after consumer prices dropped 1.2 percent in December.
The Central Unitaria de Trabajadores (CUT), Chile’s biggest union, says companies are using the crisis as a pretext to cut costs by laying off employees and to establish more flexible labour mechanisms that hurt workers.
This week, CUT president Arturo Martínez held meetings with the leaders of the unions of two supermarket chains that laid off 1,400 workers.
The controversy is currently focused on the entrance into effect of a law that reforms the labour code and modifies the base salary, which will benefit some employees.
The business community argues that the new mechanism, which is to go into effect on Jan. 21, will bring an excessive increase in costs in the midst of the crisis. While the government says it is open to the possibility of introducing changes to the new law via decree, workers have threatened to hold protests if that happens.
'We are looking at the possibility of generating a large mobilisation in January, and we are planning a nationwide work stoppage for April, because we are not going to pay the costs of this crisis,' said Martínez.
Carmen Espinoza said the financial crisis born in the United States has once again revealed this country’s structural problems, 'which cannot be fixed by government bailout packages.'
The current economic model 'does not offer Chilean society true social security. Today, Chilean workers have to pay for education, health care, housing and basic services out of their wages,' she said.
Another serious internal problem, whose significance has not yet been acknowledged, is the high level of consumer debt among Chilean families, said Espinoza.
'Today people owe as much as 25 times their monthly salary, which is unsustainable,' she said, warning that the problem could generate 'another crisis, or turmoil' in the short term.
© Inter Press Service (2009) — All Rights Reserved. Original source: Inter Press Service