Spending

Is Chile Too Cheap to Educate Its Young?


Katherine Barrios’s five years at a Chilean university left her with debts of about 12.4 million pesos ($25,000), more than twice her annual salary as a teacher. That’s why she’s taking part in protests that have shuttered many schools and threaten to undermine 30 years of fiscal austerity. “I want things to change for coming generations,” says Barrios, 31.

Chile, the model of economic and political stability in Latin America for the past 20 years, was rocked in June when a quarter of a million pupils occupied classrooms to demand more government investment in education. On Aug. 25 the weekly protests degenerated into pitched battles with police.

Meeting the students’ demands may cost 2.2 percent of gross domestic product, the Universidad de Chile estimates, upending the fiscal restraint that has eliminated the country’s debt. Yet failure to improve education may prevent Chile from becoming the region’s first advanced nation, a goal of President Sebastián Piñera.

Households bear the cost of 39 percent of all education spending in Chile, higher than the other 33 members of the Organisation for Economic Co-operation and Development and almost double the U.S. rate, according to the Paris-based group. And education levels are worse than all other OECD members except Mexico. “Chile will never, ever become a developed country without an improved education system,” says César Pérez-Novoa, a managing director of Santiago-based brokerage Celfin Capital. Chile ranked 31st in the World Economic Forum’s latest Global Competitiveness Index. In education it ranks 87th, according to the Geneva-based organization.

Education “is our Achilles’ heel,” Finance Minister Felipe Larraín told reporters on Sept. 6 after unveiling the index’s results. A lack of qualified professionals is a “threat” to the development of the mining industry in Chile, Diego Hernández, chief executive officer of Codelco, the world’s largest copper producer, told the annual gathering of the copper industry in April. In the longer term, a deficient education system may prevent Chile’s economy from curbing its dependence on copper, Celfin’s Pérez-Novoa says.

Chile’s austerity helped it emerge from a financial crisis in the early 1980s to become the only Latin American country with savings, equal to 7.6 percent of GDP as of March. The government’s tight hold on the purse strings has also helped keep a lid on inflation, attract foreign investors, and keep interest rates low. Even the modest concessions the Piñera Administration has offered the students so far may require it to raise corporate income taxes to 20 percent, from 17 percent, Economy Minister Pablo Longueira said in an interview published in Santiago’s El Mercurio newspaper on Sept. 10.

After paying one year’s tuition herself, Barrios took out a student loan from Banco Falabella, a government-approved lender. The Santiago-based bank charged more than 5 percentage points above inflation, which was 2.6 percent at the time, even though the credit was guaranteed by the state, she says. After borrowing about 4.4 million pesos, she will eventually pay back about 12.4 million. “The interest is shameful,” she says. The government has offered to cut the interest rate on loans to 2 percent above inflation and to provide more scholarships. It’s not enough, say the students.

Dictator Augusto Pinochet turned higher learning into a “pay-as-you-go” system, Martin Carnoy, an education professor at Stanford University, says. By including state-run universities in a program that privatized everything from utilities to the pension system, Pinochet was able to cut funding for these hotbeds of opposition to his 1973-90 military rule. Today, the educational costs Chilean households have to bear contribute to inequality, as poor and middle-class families struggle to send their children to university, Carnoy says.

Piñera has pledged to improve education while maintaining tight control over spending. Student demands for funding come to nearly 13 percent of Chile’s public expenditures, he said on Sept. 22. “We cannot afford that.”

The student demonstrations often resemble a carnival, as protesters stage dances and dress up like characters from Hollywood films. Drawing comparisons with the Arab Spring protests in the Middle East, the media has taken to calling the youth-led movement the “Chilean Winter.” The protests have involved a kiss-in and an 1,800-hour relay run around the presidential palace. “We’re seeking a complete restructuring of education,” says Esteban Gutiérrez, a 24-year-old university student, during a break from playing drums at the Sept. 14 demonstration. “We are going to keep protesting.”

The bottom line: Student funding demands for Chile’s university system could cost 13 percent of the nation’s spending. The government refuses to cough up.

Woods is a reporter for Bloomberg News.

Steve Ballmer, Power Forward
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