Tuesday, December 13, 2011

Chile Third Tertiary Education Finance for Results Project

Chile is an upper middle income country which recently acceded to full membership in the OECD. It has one of the most politically stable systems in Latin America, strong institutions and a solid record of economic growth during the last two decades. A center-right administration took office in March 2010, following on 20 years of continuous center-left governments. Despite differences in political stance, the current Government is pursuing largely centrist policies with overall goals similar to those of previous governments: promoting reforms to boost growth, investing in human capital, and tackling poverty and inequality.

Within this context, Chile is challenged to reverse declining relative growth performance and insufficient innovative capacity so that it can grow the size and wealth of its middle class. Chile's growth has slowed from an average of 7.6% during the period of 1986-1997 to 3.9% in the period of 2000-2010.1 A consensus exists among economists that Chile’s high growth during the “golden years” was the product of the transition to macroeconomic stability and openness. As such, it was a one-time change to the level of output and not a fundamental shift in the rate of output growth. During the “golden years”, more efficient firms replaced less efficient ones, and TFP grew at over 4% p.a. After 2000, the low hanging fruit was gone and Chile needed to do laborious work of achieving within-firm efficiency improvements; it has been less successful at this than East Asian comparators. 2 An abundance of high-quality human capital is one of the essential elements of meeting this productivity challenge.3 Chile could raise output by 2% per year according to the soundest estimates. Doing so would decrease the time to reach OECD average levels of income by 50%.  The quality of investment in human capital, is thus a major concern of public policy at all levels, from the citizenry in general to Government planners and policymakers.

The Government of Chile (GoC) has launched a development agenda which sets the stage for achieving high-income developed status by 2018. The strategic areas that the GoC is emphasizing to reach this goal are: i) achieving greater competitiveness, including modernization of the state; ii) improving job creation and job quality; and iii) promoting investment, including in human capital. The Government has embraced increased investment and increased policy attention to education at all levels as a key pillar of economic and social progress. While the Government seeks to implement this agenda, it faces eager youth who want to see educational opportunity and educational quality improved immediately.

On-going conflict between student organizations and the Government have increased political risk and led to polarization in the political sphere. The Government has sought to resolve the conflict through dialogue around key policy issues. Progress has been sporadic. While student organizations do not always speak with a unified voice, the conflict revolves around two core issues: (i) who should pay for tertiary education and; (ii) how can quality beimproved. Students seek tertiary education that is 100% financed by the Government and free to all students. They also want the Government to guarantee quality and prohibit tertiary education institutions from being de facto for-profit institutions. The Government and the students agree much more on the quality agenda than on the question of who should pay for tertiary education. A reflection of the agreement is the submission to Congress of draft laws creating a Superintendence and an Under-Secretariat for Tertiary Education. Legislation has also been introduced to radically lower the interest rate on the main student loan program (from 5.6% to 2%), although this has not fully satisfied students’ wish for publicly-financed tertiary education.

World Bank.Document Date: 2011/11/24.Document Type:Project Information Document.Report Number:AB6750.Volume No:1 of 1