Destructive Riots in Chile: Economic Impact Analysis

This report provides an in-depth analysis of the destructive riots that occurred in Chile, examining the underlying causes, the demands of the protestors, and the significant economic impact on the country. The report begins by outlining the reasons behind the protests, including income inequality, low wages, and the privatization of essential services. It then delves into the specific demands of the protestors, such as lower public transport fares, changes to the pension system, and the introduction of a new constitution. Furthermore, the report analyzes the economic consequences of the riots, including the impact on GDP growth, unemployment rates, and the country's neoliberal market. It also discusses the government's attempts to control the riots and anticipates the future negative effects on Chile's macroeconomic performance. The analysis highlights the significant disruption to infrastructure, loss of life, and the potential long-term implications for the country's economic stability and international standing. The report concludes with a comprehensive overview of the events and their far-reaching consequences.

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Executive Summary
The paper aims to analyse the impact of Chilean protests on the overall economic operations
of the country. The paper begins by presenting the various reasons behind the onset of the
protests. It describes the individual perspective over the dictatorship of the Chilean
government. Additionally, the report includes the various demands of the protesters and their
views against the president. Lastly, the paper includes the possible impact of the ongoing
riots over the neoliberal market of Chile. Furthermore, the report anticipates the future
negative impact of the riot on the macroeconomic performance of the country. Additionally,
it includes the various policy attempts of the government to control the destruction.

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Table of Contents
Introduction................................................................................................................................3
Reasons behind the onset of Chilean riots.................................................................................3
The outcome of the Chile riot on domestic factors................................................................4
The demand of the protestors.................................................................................................5
The economic impact of the protest...........................................................................................6
Government initiatives to control riots..................................................................................7
Conclusion..................................................................................................................................8
References..................................................................................................................................9

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Introduction
Chile is located in the western region or range of South America and is famous for its
viticulture. The country is characterized by high inequality in income distribution and low
wages for a majority of the population. The standard of living is continuously dropping due to
the rapid increase in expenditure of the majority of the population. This high cost of living is
affecting the lives of many and increasing levels of poverty in the region. Despite a stable
GDP growth rate and inflation level, the economy has relatively poor living standards. This
poor living condition is mainly because of the unequal income distribution (Paredes, Iturra &
Lufin, 2016). The lower and the middle-income population are unable to maintain their
average rates of affordability as well. The wage rates are low that restricts the residents from
purchasing commodities. As a result, there are widespread protests against the increase in
rates of public transportation and other expensive products or services. This inflation has led
to the creation of civil protests, which is transforming into bitter riots within the economy.
The protests began on 20 October 2019 and are continuing.
Consequently, several economists have anticipated a negative outcome of the
continuation of this riot. This paper is formulated to present a brief overview and the causes
of the riot. Additionally, it tries to display the possible impact of these protests on the
economic factors and neo-liberalism aspect of the economy.
Reasons behind the onset of Chilean riots
Long before the increase in fare of the Santiago metro service, the thought of protests
incepted in the minds of the suffering population. Chile is known as one of the unequal
income distribution regions of South America. The residents of the country are affected by
the low wages and salaries offered by employers in Chile. These have created wages as well
as income inequality among the population (Hartmann et al., 2017). There is a wide disparity
between the upper-class individuals and low-income earners. In addition to the increase in
metro fares, there is a hike in rates of buses and other forms of public transports (Bucknell et
al., 2016). The metro prices witnessed an increase of 30 pesos that is about $ 0.04 US dollar.
The ministry of transportation of Chile decides the adjustments in the prices of public
transport in the country.
Moreover, the crucial reason behind the increase in prices of transportation in Chile is
the continuous rise in world petroleum prices (Troncoso & de Grange, 2017). The rate of
increase in transport fares was more than the rate of increase in income of the population. The

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minimum wage was substantially poor (Nellthorp, 2017). Although the administration tried to
maintain the inflation rates, the households were submerged under high levels of debt. As
indicated by the protestors, the increase in costs of fares and lowered wages are not the only
problems in the country. The privatization of the health and education sectors affected the
poverty levels and budget plans of many (Sigmund, 2019). For a majority of the Apart from
education and health, the various public utilities, pension system and rents were also
privatized to increase the growth rate of the nation. The combination of a reducing wage rate
and rising health and education expenditures incepted the crisis. Despite increasing
efficiency, the rapid privatization led to delays and reduction in pension payouts (Salazar,
2017).
Moreover, the continuous increase in the value of the US dollar is affecting the
current account of the country. Not only the variation in world oil prices and dollar rates
affected the increasing prices but also the volatility of Euro, high cost of labour and inflation
has led to an increase in the fares of transportation in Chile. All these factors raised the living
costs of the population of Chile. Consequently, this induced the people to organize and raise
protests against increasing fares and privatization.
The outcome of the Chile riot on domestic factors
Unequal communities characterise and dominate Chile. There are a lower investment
in human capital and education and lesser innovations in private healthcare centres. All these
led to societal problems and created a burden over the welfare of the households. All these
cost-raising factors ignited the sufferings of the population and exploded in the form of
violent protests. On 20 October 2019, the protests began to take a violent shape in the streets
of Chile. Originally, a group of school and college students initiated the protests, which
escalated and expanded in the country. Afterwards, several groups of the population merged
to form a single group of protestors and started destroying the infrastructure of the country.
The protests were characterized by destroying and burning of the metro stations of Santiago.
The protests and rapid breakdown of civil protests severely damaged more than 80 metro
stations all over the country.
Additionally, more than 15 metro stations were burnt down. These protests have cost
millions to the government of the country. The authority handling metro operations in the
region took several initiatives such as safeguarding metro departments and closing stations in

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the evening. However, the authority failed to protect the metro infrastructures from wearing
out by the rapid and increasing destructive protests. In addition to this, several lives were at
stake and many died as well. Therefore, not only was there a huge infrastructural loss, but
there was also a loss in human lives. Apart from metro stations, various supermarkets and
petrol stations were burned completely. These violent protests induced the president to
declare emergency over the state affairs and operations.
The demand of the protestors
The major demand of the protestors is to bring changes or more specifically,
reformulation in the current macroeconomic pattern of the country. The first and foremost
demand of the protestors is to deduce the prices of public transports such as metro services in
Santiago and bus fares in the region. They demanded and asked the administration to reverse
the fares during the rush hours in Santiago. In addition to this, they protested to reverse the
privatization policy in the education and health sectors of the Latin American state (Diaz
Rios, 2019). The privatization in the educational and healthcare system badly affected the
households’ consumption patterns (Kubal & Fisher, 2016). People are not able to consume
quality education and healthcare facilities with a comparatively lower level of income. A
combination of lower wage rates and higher expenses devastated the living standards of the
majority of households, especially the lower and middle-income households (Paredes, Iturra
& Lufin, 2016). As a result, the protestors demanded to create and offer better wages to
enhance their living standards.
Furthermore, there are protests against the reform in the pension scheme. The
privatization of the pension system in Chile greatly affected the adult population. There was
an increase in delays in pension payouts and reduction in pension schemes (Niedzwiecki &
Pribble, 2017). The macroeconomic objectives of the administration affected the various
schemes of authority. As a result, the protestors demanded to introduce a social scheme to
raise the benefits of the people. Above all, the protestors demanded to develop and build a
new constitution and eliminate the effects of dictatorship (Javier, 2017). The growing
dictatorship over the population induced them to demand the resignation of the president. The
various policies of the Chilean government reduced and adversely affected the rights of the
common citizens of the country. Therefore, the residents of the country frowned upon the
administrative and profit-oriented policies of a dictator government. This policy instigation

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raised the demand for the mass population against the welfare deteriorating policies of the
Chilean government (Borzutzky & Hyde, 2017).
The economic impact of the protest
Chile is considered a free-market champion among all other free-market economies in
the world. The success story of the economy is completely based on the neoliberal capitalism
policy of the nation. This free-market capitalist structure of the country has earlier helped the
economy to reduce its poverty levels. The government were successful in increasing
employment and reducing the poverty rate to about 7 percent (Aljazeera.com, 2019). Chile is
a middle-income country that faced several pitfalls and obstacles at an early stage of
development. The country has availed and achieved high rates of growth in the era of a
successful transition. All these were made possible due to the free market and capitalist
structure of the economy.
However, this prosperous situation lasted for a short period. This achievement was
reduced by growing income disparity and rising inflation rates in the country. High-income
inequality led to the formulation of poverty. Residents were unable to afford basic
commodities and an average standard of living. The policies of the government were unable
to sustain the welfare and rights of the population. Chile initially had a substantially high
human development index (Hdr.undp.org, 2019). The country managed to develop rights and
reduce poverty levels. However, in the later years due to volatility in exchange rates and
rising world oil prices affected the productivity of the organizations. In October 2019, the
unemployment rate in Chile was about 7 percent (tradingeconomics.com, 2020). These high
rates of unemployment indicate the increasing concerns for poverty levels in the country.
The GDP growth rate in Chile has fallen to 0.7 percent in the third quarter of 2019
(tradingeconomics.com, 2020). This GDP rate reduced further soon after the inception of the
violent protests in October 2019. Because of these riots, the unemployment rate is expected to
decrease in December 2019. This increasing unemployment is due to the obstacle and
hindrances posed by the aggressive riots over the operations and activities of the business in
the country. Chile is one of the largest producers of copper and other mineral raw materials.
However, due to the ongoing trade war between China and the United States is affecting the
prices of these raw materials. This instability in prices is affecting the profitability of the
organizations. In addition to this, the labour market is undergoing a shortage of labour due to
poor wages offered by employers in the country.

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Furthermore, the labour market can suffer from severe shocks. The minimum wage
offered by employers affects the interests of the employees to contribute to the labour market.
Therefore, there is a shortage of employees in the market. A large number of deaths are
posing and building fear within the employees as well. These random deaths can adversely
affect business and organizational activities, leading to a decline in productivity and
investments.
Consequently, domestic turmoil is affecting business development in the region. This
situation of falling FDI inflows is expected to deepen in the future if the turmoil continues to
operate (Ft.com, 2020). Moreover, international firms and organizations tend to avoid market
instabilities. Chile is well known for its neoliberal market strategies and international
business prefers free-market movements to avoid restrictions. Riots can possess threats over
the neoliberalism of the country. It is liable to disrupt the free-market movements in Chile.
As a result, organizations are expected to receive substantial shocks from the obstacles in
free-market operations. Therefore, to raise production and organizational operations, the
administration of the country should take the necessary steps. Efficient steps and effective
policy designs can increase the capital inflows in the economy and stabilize growing
unemployment and minimum wage issues. As a result, the riots and violence caused by
protests can be deduced.
Government initiatives to control riots
The worsening condition of the entire Chilean economy is an alarming situation for
the administration. As a result, the government of Chile is designing policies to curtail the
negative effects possessed by the violent and destructive protests of the Chilean residents.
The “anaemic growth” is the target region of the policy designers. The estimated budget
decided by the government is about 5.5 billion dollars (Aljazeera.com, 2019). The aim is to
raise public spending to support the mass and introduce new job opportunities for the youth
population. These job opportunities are formed by raising the support of small and medium-
scale organizations. The president introduced military securities to reduce protests. In
addition to this, Chile president Pinera has offered to increase the level of the minimum wage
rate.
Additionally, the government has raised the number of pensions and lower healthcare
bills. Furthermore, it is designing policies to subsidize healthcare facilities to the citizens and

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especially to the lower and middle-income members of the society. Pinera has aimed at
reducing electricity expenses and roll taxes as well. In addition to this, the government is
planning to provide financial support to the poverty-stricken families of Chile
(euronews.com, 2019). This policy of providing funds is introduced to raise living standards
of the tormented households of Chile. However, these policies are termed as ineffective and
limited to paperwork. Thus, the government should introduce and successfully implement
policies to curtail the situation.
Conclusion
The information gathered and presented in the report suggests that the ongoing
Chilean riot is creating adverse turmoil in the market functioning of the economy. Since
October 2019, the riot is continuously increasing and giving severe radical shocks to the
country’s economic growth and development. The violent protests have already affected the
infrastructure of the nation, which has cost the government about millions of dollars. The
inequality in income and the rising cost of living is the major reason behind the inception of
the riots. The wages offered by the employers are unacceptable and poor to avail necessities.
Thus, the welfare of the population is readily affected by the inefficient and authoritative
policy of the government. The business sector is affected the most, as they are unable to
operate in a volatile and radical environment such as that of Chile. There are random
obstacles over the day to day normal functioning of the production companies. The economy
is currently witnessing severe loss in economic operation. As a result, several economists
have anticipated a steep fall in economic growth in the future. Additionally, this is expected
to affect employment in the first quarter of 2020. Thus, to conclude, this can be said that
Chilean riots have adversely affected the macroeconomic performance and if these civil
protests continue to occur, then the economy can fall under severe recession.

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