The Chilean economy was closed to international trade and capital flows, interest rates were regulated, credit was restricted, and banking activity was largely controlled by the State. In the second half of the 1970s the banking sector was privatized and liberalized. However, this was not accompanied by adequate regulation and supervision; and a relatively small financial system built major vulnerabilities. When macro policy missteps and external shocks hit in 1982, the banking sector was not just a weak link, but amplified them into the deepest economic and financial crisis in a generation. The Chilean financial crisis of the 1980s and the origins of the subordinated debt Financial crises are abrupt, costly and protracted affairs, and the Chilean financial crisis of the early eighties was no exception. This crisis is often quoted as one of the top 25 most severe financial crises in modern history. In 1981, annual output growth went from positive 9% in the first quarter,   I thank the comments and suggestions in preparing this speech to Solange Berstein and Mauricio Calani. Page 1 of 5  Central Bank of Chile March 2019  to 0% in the fourth quarter, and to minus 14% in 1982. That same year, unemployment reached a record of 25%, and businesses all over the country were seriously hampered, ultimately affecting their payment compliance. Banking profitability went quickly to negative territory and the delinquency rate quadrupled to 15% of the total portfolio, putting several banks solvency and operations at risk.
In any event, it is important to stress that facing the challenge of population ageing (which is not exclusive to Spain, but is proving particularly acute in our country) will call for the adoption of a multidisciplinary strategy to encourage the participation of elderly workers, to adapt migratory policy to the needs of the labour market and to boost the birth rate. Despite strong job creation during the recovery, the unemployment rate remains very high, and its persistence (in particular among specific groups, such as the lesser skilled) raises the risk of it becoming structural. In this respect, the high skills mismatch between the employed and unemployed calls for active employment policies to boost the employability of each socio-demographic group, using those instruments which, further to appropriate assessment, have proven most effective. Furthermore, the number of temporary employees as a proportion of total employees stands in excess of 27% and there is some evidence of new temporary contracts being of shorter duration in the recent period; in addition to the social difficulties that generates, human capital accumulation is also impaired. Reducing the incidence of temporary employment would call for boosting the attractiveness of permanent hires. Thirdly, I wish to refer to productivity. The Spanish economy has continuously posted very weak figures for this variable in recent decades, and this has prevented a greater degree of real convergence with our European partners. Improving the dynamics of this variable is crucial for raising the economy’s potential growth in the long term, and the well-being of our citizens.