## Making Chile’s Economy More Dynamic, Greener, and Inclusive _IMF News, February 15, 2024_ ## Source details **Canonical URL:** [Making Chile’s Economy More Dynamic, Greener, and Inclusive](https://www.imf.org/en/news/articles/2024/02/15/cf-making-chiles-economy-more-dynamic-greener-and-inclusive) ## Other formats - [Markdown version](/en/news/articles/2024/02/15/cf-making-chiles-economy-more-dynamic-greener-and-inclusive/index.md) - [Structured JSON version](/en/news/articles/2024/02/15/cf-making-chiles-economy-more-dynamic-greener-and-inclusive/index.json) - [Bundle manifest](/en/news/articles/2024/02/15/cf-making-chiles-economy-more-dynamic-greener-and-inclusive/bundle-manifest.json) ## Bibliographic details - Authors: Luiza Antoun - Published: February 15, 2024 --- ### Overview - Chile has successfully brought down high inflation and reduced the large current account deficit that emerged during the pandemic. - Increases in social benefits have provided some relief in response to discontent over inequality. - Investment and growth remain tepid and social gaps remain high. - Chile is the world’s largest copper producer, second largest lithium producer, and richly endowed with solar and wind resources. ### Boosting economic activity - Electricity generated from solar and wind increased from 1 to 23 percent of total electricity supply during 2010–22. - Replacing coal with renewable energy, along the lines of the authorities’ plans to decommission coal-fired power plants by 2040, could boost economic activity by at least 1 percent over the long term. - Such a shift in the energy mix would imply a nearly 30 percent cost reduction in electricity generation, in addition to benefits from lower carbon emissions and air pollution. - A shift in the energy mix would significantly strengthen the economy’s resilience against future coal and fuel price shocks. - Development of the green hydrogen industry could offer additional growth prospects, conditional on further reductions in the production and transportation costs. - The geographic mismatch between power generation and consumption is a main bottleneck: areas rich in solar and wind in the northern and southern parts of Chile are more than 1,000 miles away from its economic hub in the central area. - Upgrading the transmission network, including through the new Kimal-Lo Aguirre transmission line set to become operational in 2029, could help resolve this bottleneck. ### New opportunities - Greater use of lithium for energy storage in batteries presents an opportunity for Chile to play a role in global efforts to reduce carbon emissions. - Higher global demand for lithium offers prospects to expand Chile’s lithium production and related industries along the value chain, while balancing social and environmental objectives. - Lithium has become an important source of exports and fiscal revenue for Chile in recent years when the lithium price surged. - The country is planning to expand its lithium production through public-private partnerships. - Providing a clear institutional framework for investors that can be swiftly implemented as global demand ramps up will be an important factor to further develop the industry. ### More investment needed - Chile’s economy is projected to resume growth in 2024, but its average real economic growth rate has been declining for many years alongside negative productivity growth. - Strengthening investment is critical to sustainably raise and diversify economic activity. - Investment approvals have become more complicated, uncertain, and lengthier over the years, reflecting more complex safeguards for the environment, health, safety, social concerns, and a larger number of stakeholders. - The government’s ongoing efforts to streamline and improve coordination of permitting processes, while maintaining high environmental standards, could contribute to lifting much-needed investment and bring meaningful growth dividends. ### Key policy implications and priorities - Advance the planned decommissioning of coal-fired power plants by 2040 and accelerate the replacement of coal with renewable energy to realize at least 1 percent long-term economic gains and a nearly 30 percent reduction in electricity generation costs. - Invest in transmission upgrades (including the Kimal-Lo Aguirre line becoming operational in 2029) to address the more-than-1,000 miles geographic mismatch between generation and consumption centers. - Support cost reductions in green hydrogen production and transportation to unlock additional growth prospects. - Develop a clear, implementable institutional framework for lithium investment and expansion, prioritizing public-private partnerships while balancing social and environmental objectives. - Streamline permitting and coordination processes to reduce delays and uncertainty for investment, while upholding high environmental, health, safety, and social standards. *IMF News — February 15, 2024. Authors: Luiza Antoun de Almeida, Si Guo, and Andrea Schaechter.* --- ## References - [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus) - [Our estimates](https://www.imf.org/en/Publications/CR/Issues/2024/02/06/Chile-Selected-Issues-544442) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2024/02/15/cf-making-chiles-economy-more-dynamic-greener-and-inclusive_