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Megan Vezzetti

Mr. Phillips

AP Language and Composition

13 December 2019

The Economic Effects of Chile’s Protests on Economic Inequity

A strong free-market economy, a thirty peso hike in subway fares, and now protests are

tearing apart the country and prosperity of Chile. Despite a glowing international reputation for

its wealth, Chile has struggled for years with glaring inequity. While some live in opulence,

many more Chileans struggle, oppressed under the weight of the market. According to Pascale

Bonnefoy, a journalist for the New York Times, in his article on the state of emergency in Chile,

wages have remained “stagnant,” while the cost of living has risen. The average citizen spends

almost one-fifth of their monthly wages on transportation. When the price of riding the subway

in Santiago rose in mid-October, high school students began to protest and “opened the

floodgates” to a larger tide of unhappiness with Chile’s economic and political system. The riots,

strikes, and looting accompanying the protests have caused immediate economic damages, but

reforms have mitigated some of the effects and will strongly impact the future trajectory of

Chile, pushing it to bring more prosperity to all.

The domestic issues in Chile present a huge problem to small businesses, which are

unable to eke out a living in the tumultuous chaos of protests. An article by Eduardo Thomson, a

leading reporter from Santiago for the news organization Bloomberg, relates the struggles of Luz

Diaz, who has had problems running her vegan food store in the midst of the crisis. At times, she

has been forced to shut down entirely for a half day or more, due to fears of looting or violence,

which has prevented sales. With no savings, the store doesn’t have money to buy anything, and
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she already had to “let one of her two staff go.” In the chaos of protests, the owners and workers

at small retail shops are unable to make sales, and they lose profits even when they risk opening.

Until the situation changes, the roughly 50% of Chileans that work in retail face the prospects of

missed paychecks and lost jobs from layoffs or stores going out of business. Time reports that

early estimates predicted $1.4 billion in damages and lost business from arson and looting and

the number is sure to grow every day that the protests continue.

Businesses in the tourism industry are also feeling impacts from the protests, and the

losses of profit will remain until the crisis stops. Monica Zalequett, Chile’s sub-secretary of

tourism, is quoted in a Reuters article about the specific concerns facing this industry. November

is summer in Chile, the beginning of “high season,” and the beaches should be drawing crowds.

However, few want to take their vacation there in the midst of the upheaval, and the number of

hotel reservations has dwindled to half the usual volume. This is harmful to the tourism industry,

which has “endured a long wait for these summer months,” and is unlikely to see any more travel

“until the country’s economic situation stabilizes.” Additionally, Chile has pulled out of hosting

two important international summits—APEC and COP25—which were set to bring forty to fifty

thousand people into the country (“Chile’s Tourism Sector Reels as Visitors Cancel Trips Amid

Protests”). This loss affects not hotels, but other businesses such as restaurants, convenience

stores, and grocers, which would have benefitted from an increased amount of consumers and

money entering the economy.

The mining industry is another main sector of the Chilean economy and has also seen

impacts from the protests, but these effects have been minimal, and it is already recovering. Dave

Sherwood is a reporter for Reuters who often covers Chilean news. According to his article on

lithium mining, production at the Atacama salt flats, the largest reserve of lithium in the world,
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was temporarily blocked off by the indigenous peoples acting in solidarity with protesters. The

lithium mining corporation SQM was shut down for two days in the wake of the protests. If these

closings cause a decline in production, this could lead to a chain reaction, with fewer exports,

less profits for corporations, reduced income for miners, and less money entering the economy

overall. However, workers at the lithium company Albermarle adjusted shift schedules to adapt

to the limited transportation and keep the company running. In a separate Reuters article on the

copper industry, it is reported that a union strike in connection with the protests hindered one

mine, while there were some incidents of arson in two other mines. Stoppages of public

transportation and road closings have caused supply chain issues and forced miners to fly in

workers and supplies on small planes. Fortunately, the strikes and protests have only been minor,

and copper workers have mostly stayed on the job. Since Chile produces almost 30% of the

world’s supply of copper, the mining industry is a significant employer for Chileans, and it is

essential that it remains running smoothly (“Chile Copper Mine Outputs Largely Unaffected by

Protests Despite Some Attacks”). Fortunately, the effects of protests have been minimal. Mining

has increased two percent in Chile this year, according to an article by Fabian Cambero and

Dave Sherwood, which is a positive trend for workers in an economy that has been posting

increasingly concerning numbers throughout November and the latter half of October.

Between infrastructure damages, slowing growth, manufacturing decreases, and

increasing unemployment, the forecast for Chile’s economy isn’t looking good. The Time article

early in the crisis reported that 1.4 billion dollars was the expected impact on businesses from the

looting and arson, while the subway and public transit systems had taken about $400 million

worth of damages. It originally predicted the economic growth to slow to 2-2.2% from 2.6% due

to protests. Later, the article by Cambero and Sherwood said that the estimate was “slashed”
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even further, down to just 1.4%. The gross domestic product dropped dramatically by 5.4% in

October due to the protests. The National Agricultural Society expects a 2% decrease in crop

production and the manufacturing industry expected a 1% decrease, according to Thomson.

Chile’s Finance Minister, Ignacio Briones, believes that the country is “generating employment

in half speed.” He is backed up by the prediction in Time that 300,000 people could lose their

jobs as “weeks of riots hammer” the economy. Taken individually, any of these statistics is

concerning. Taken as a whole, they show that the costs of the protests will be huge for individual

workers facing unemployment and for the amount and value of money in the country.

Throughout the crisis, the Chilean peso has been decreasing in value. In an article on the

stock market, Sherwood describes how the peso’s value fell to unprecedentedly low levels after

the start of the protests, causing concerns for a possible recession. When the value of a currency

falls in relation to other currencies, imports from other countries become more expensive, but the

price of goods exported internationally goes up. When a country’s manufacturing is strong, this

can be beneficial, but when production rates are falling, like in Chile, it contributes to inflation,

reducing the value and purchasing abilities of the peso. This fall of the peso may also contribute

to a rise in fuel prices, according to the Reuters financial report. Chile can not produce its own

fossil fuels, so it has to import them. This caused the initial subway fare raise. Unless the

government compensates for this additional expense, or inflation returns to normal levels, travel

and public transportation may become even more expensive when the subways reopen.

As the value of the peso fell lower and lower, the need for government action became

more and more pressing. Briones, previously hopeful that Chile could avoid a recession, became

increasingly alarmed at the “enormous costs for Chileans” from the stalling economy. In early

December, the government announced an economic recovery plan. It called for the spending of
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$5.5 billion, including $2.4 billion in infrastructure. To offset the estimated 9.8% increase in

spending, the government plans to sell foreign currency bonds, but it will be unable to

completely prevent a rise federal debt (“Chile Announces $5.5 Billion Economic Recovery Plan

as Protests Bite”). At the same time, the central bank revealed plans to sell up to $20 billion from

the federal currency reserves, according to a Bloomberg report on the plan. This move caused an

immediate 2.3% increase in the value of the peso. Bank president Mario Marcel is calling these

rapid fluctuations evidence of an “excessive level of volatility in the market,” and the result an

overreaction to the news (Sanders). For example, in mid-November, the announcement of a

referendum on Chile’s constitution caused the stock exchange to increase the most of any single

day in the past 11 years, according to Sherwood’s article on the stock market. While the news

caused beneficial changes in this situation, bad news tomorrow risks causing stocks to drop once

again. The new bank policy is designed to reduce this volatility to more manageable levels,

making the economy more detached from the political upheaval and hopefully returning some

semblance of normalcy.

Along with reducing the effects of the protests, the actions of the government are sure to

cause long-term changes in the overall structure of the economy. Since the 1980’s, Chile’s

economy has been controlled not by the government, but by economic measures designed to

account for inflation and other factors. Sometimes, like in the case of the metro-fare, the decision

to raise prices is made by an independent committee that can’t be overruled by the government,

and, in extension, by the people (Arrigada). In addition, the New York Times editorial board

writes on how Chile employs an extreme form of laissez-faire economics and that its taxation

policies are not designed to reduce economic inequality. In the Organization for Economic

Cooperation and Development, made of comparably wealthy countries, Chile has roughly
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average income distribution before taxes. Despite this, it ranks last in equality after taxes. This

angers Chileans who are struggling financially. Internationally, Chile’s wealth causes it to be

seen as President Piñera paints it: an “oasis,” with flourishing growth and a strong democracy

(“State of Emergency in Chile as Violent Protests Spread”). In actuality, the editorial board

claims, ordinary citizens are unfairly subject to “the vicissitudes of a market economy while

being denied a sufficient share of the benefits” because taxation and other policies place undue

burdens on them compared to the wealthy.

By meeting the protesters’ demands, the government will be able to help those who have

suffered under the inequity of the economy. Piñera has already announced reforms that protesters

called for, including as a new income tax bracket, new insurance and welfare, an increase in

pensions, and a higher guaranteed minimum monthly income (Sanders). In addition, proposed

legislation will allow the regulation and oversight of the committee that called for the price

increases (Arrigada). This change makes the committees more responsive to the effects that their

changes will have on the people, rather than just the market. In another huge reform, Chile

having a referendum on their constitution, Sherwood writes in his article on the stock market.

The vote will be not only on if there should be a new constitution, but also on who will construct

it—citizens, or citizens and lawmakers. These reforms make the Chilean economic system

increasingly oriented to social welfare and more in the hands of the people, lending power to

those who have previously been oppressed by the unfair system.

While the economic reforms are what people desire, their actual effectiveness is a matter

of some debate. Some of the demands are controversial in their effects on the economy, such as

raising the minimum wage. While it would certainly increase the wages of some of those

employed, helping them keep up with the spiralling inflation, it would also most likely result in
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even higher unemployment. Finance Minister Briones is cited in the Reuters financial report for

saying that a dramatic increase in the minimum wage would be “the worst thing” the government

could do in this crisis situation. However, meeting the demands of the protesters, no matter how

ineffective the reforms may or may not be, would certainly have a beneficial effect on the

economy. If people stop protesting, rioting, and causing destruction, the economy will be able to

normalize more quickly. Business will be able to reopen, tourists spend money, workers continue

production as normal. Though some of the proposed changes are costly, such as the increase in

pensions, the government can afford it. By creating their economic plan they have already

recognized the need for more spending and intervention, even at the expense of the national debt.

The protests in Chile are going to continue until the demands are met, or an acceptable

compromise is reached. Issues that have existed since the rise of Chile’s democracy have come

to a head, and the county can not move forward until they are put to rest. The government needs

to comply with the requests of protesters—it has no other way of humanely ending the protests.

And the citizens are not going to stop until they begin to move towards the same level of

economic equality as other OPEC countries. Banking actions and government spending will only

act as an ineffectual band-aid to the real issues, which could be solved with the reform and

rewriting of the constitution. When that happens, the economic system of Chile, in addition to its

governing system, will be fundamentally changed, hopefully for the better. Until then, protests

will continue to happen and the economy will continue to suffer. As accountant and Chilean

citizen Veronica Gonzalez put it to Time, “the fight has to go on anyway,” and it certainly will,

despite the economic hardships.

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Works Cited

Arriagada, Ignacio Moya. "Once an Oasis of Stability, Chile Now Burns; Opinion." Globe &

Mail [Toronto, Canada], 26 Oct. 2019. p. O8: Gale In Context: Global Issues. Web.

Accessed 25 Nov. 2019.

Bonnefoy, Pascale. "Chile President, Responding to Protests, Promises to Address Economic

Woes." New York Times, 23 Oct. 2019. Gale In Context: Global Issues. Web. Accessed

25 Nov. 2019.

Bonnefoy, Pascale. “State of Emergency in Chile as Violent Protests Spread.” New York Times,

20 Oct. 2019. Gale In Context: Global Issues. Web. Accessed 2 Dec. 2019.

Cambero, Fabian and Anthony Esposito. “Chile Copper Mine Outputs Largely Unaffected by

Protests Despite Some Attacks.” Reuters, 6 Nov. 2019. Web. Accessed 1 Dec. 2019.

Cambero, Fabian and Dave Sherwood. “Chile Announces $5.5 Billion Economic Recovery Plan

as Protests Bite.” Reuters, 2 Dec. 2019. Web. Accessed 2 Dec. 2019.

“Chile Finance Minister Warns of Job Losses, Rising Fuel Costs Amid Unrest: Reports.”

Reuters, 14 Nov. 2019. Web. Accessed 1 Dec. 2019.

“Chile’s Tourism Sector Reels as Visitors Cancel Trips Amid Protests.” Reuters, 1 Nov. 2019.

Web. Accessed 20 Nov. 2019.

Editorial Board. "Chile Learns the Price of Economic Inequality." New York Times, 24 Oct 2019.

Sirsissuesresearcher. Web. Accessed 28 Nov. 2019.

“Protests in Chile Resume as Demonstrations Crimp Economic Growth.” Time, 5 Nov. 2019.

Web. Accessed 1 Dec. 2019.

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"Protests in Chile Suspend Subway Services after State of Emergency Declared." Herald

[Glasgow, Scotland], 19 Oct. 2019. Gale In Context: Global Issues. Web. Accessed 2

Dec. 2019.

Sanders, Philip. “Chile’s Peso Gains After Central Bank Announces Intervention.” Bloomberg,

28 Nov. 2019. Web. Accessed 2 Dec. 2019.

Sherwood, Dave. “Chile Protesters Block Access to Lithium Operations: Local Leader.” Reuters,

25 Oct. 2019. Web. Accessed 20 Nov. 2019.

Sherwood, Dave. “Chile’s Stock Market Jumps on Plans to Dump Dictatorship-era

Constitution.” Reuters, 15 Nov. 2019. Web. Accessed 20 Nov. 2019.

Thomson, Eduardo and Maria Jose Campano. “As Chaos Englufts Chile, a Booming Economy

Suddenly Faces a Bust.” Bloomberg, 19 Nov. 2019. Web. Accessed 26 Nov. 2019.