# **4. RATIONALIZING GOVERNMENT SUPPORT**

Chile outperforms all other Latin American countries on microeconomic and innovation indicators. To stimulate growth and productivity and to move towards an economy based on the creation and use of knowledge, however, Chile faces significant challenges.<sup>42</sup> This review is based on research completed in 2003 using formative evaluation techniques. In contrast to impact evaluation, which focuses on a program's results, formative evaluation focuses on how a program is delivered. It assesses a program based on (i) the objectives; (ii) outreach; (iii) internal processes; and (iv) service delivery mechanisms. The available data set for the majority of programs included both administrative and operational aspects of the programs and overall outreach statistics.<sup>43</sup> The evaluators used a standardized survey instrument, interviews of key government officials and focus groups with small business managers. Most of the government programs were not able to provide actual information on clients, client satisfaction, administrative costs, and other quantitative and qualitative aspects of the programs. In the few cases, where independent impact evaluations were available, the methodologies were not standardized, making it impossible to compare the programs’ performance.

The methodology included the following four steps:

- 1) Develop a database with quantitative and qualitative information;

- 2) Classify the programs according to economic sector, geography, implementing agency, target client group, the government program’s product,  market failure, and the delivery mechanism;

- 3) Identify anomalies within each program; and

- 4) Propose a reformed private sector portfolio.

The criteria for classification of programs included the economic sectors, market failures, and delivery mechanisms. For example, economic sectors included fishing; agriculture and animal husbandry; mining; commerce; restaurants and hotels, among others. The government program’s product included grants, matching grants, or credits. Market failures included information, networking, innovation human resources, commercialization, environment, financing, and others. The delivery mechanism included groups of firms or individual firms.

## **INSTITUTIONS, FUNDS AND PRIVATE SECTOR DEVELOPMENT**

The three primary private sector development-implementing agencies are CORFO, (Production Development Corporation), INDAP (The Agricultural and Animal Husbandry Development Institute), and SERCOTEC (The Technical Cooperation Service). For each institution, this analysis is based on detailed interviews with senior management and a review of available documentation and statistics.

### **CORFO**

CORFO, created in 1939, promotes competitiveness and investments, contributes to the generation of jobs for skilled workers, and insures equal access to services promoting business modernization. CORFO is a leader in credit and guarantee schemes for the private sector, targeting SMEs through

> 42 As of mid-2004, the Chilean Government did not require any type of evaluation of government-financed programs. Therefore, client surveys, independent evaluations and even simple cost-benefit efficiency results are very rarely available.

> 43 Bartik and Bingham (1995). _Can Economic Development Programs Be Evaluated_ ? Upjohn Institute Staff Working Paper 95-29.

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