When Chilean President Sebástian Piñera was sworn into office last month, he did so with the walls around the National Congress rattling, as an aftershock of one of the five worst earthquakes in recorded history shook the building. Today, however, President Piñera is visiting Washington, DC, where he will attend the Nuclear Security Summit.
In a speech at the Brookings Institute, President Piñera’s message was clear: Chile’s plan for recovery is being put into action, but challenges remain. The Piñera administration is in a race to make up for the time lost to earthquake recovery to implement the goals of its campaign platform, primarily economic reform, poverty reduction and an increase in development.
February’s catastrophic 8.8 magnitude earthquake affected 2 million people, killing 342 and leaving 95 unaccounted for. With 370,000 homes damaged or destroyed and 200,000 needing to be entirely rebuilt, the weight of recovery is heavy. Mother Nature’s bill to the Chilean government is estimated at $30 billion – nearly 17 percent of the country’s GDP.
While these roadblocks to the new administration’s agenda are daunting, the earthquake recovery package to be announced this week is set to confront the financial burden in multiple facets, one of which is the private sector, which is expected to recover more than $3.5 billion on insured damages alone. Piñera is also likely to dip into foreign savings, sell non-core public assets, and increase corporate taxes to help pay for reconstruction. This last could spell trouble, as high corporate tax rates are a proven growth killer.
Overall, Chile’s government and economy are equipped to manage such a crisis. The country’s deep commitment to free market policies earned it the status of the world’s tenth freest economy, according to the Heritage Foundation’s 2010 Index of Economic Freedom. It is important friend of the United States, a robust free trade partner and the 31st member to the Organization of Economic Cooperation and Development. The immediate economic impact is daunting, but Chile’s recent estimates project that the economy will expand by 4.5 percent this year, bringing it closer to the president’s 6 percent goal. Maintaining a commitment to free market principles is the surest path to ensure Chile’s future growth.