For three countries, an analysis of replacement rates suggested that high past inflation did not cause replacement rates to decrease. Effective protection against the effects of inflation was achieved during the periods of highest inflation. However, there was also evidence that replacement rates decreased in Chile during two periods of moderate inflation, the late 1980s and the late 1990s. More evidence needs to be adduced before concluding that South American UC programs have implemented effective ongoing safeguards against inflation.
Chile's new UI program will rely on mainly payments from individual account balances to provide protection against unemployment. The new program will pay much higher benefits than the program being replaced, but potential duration will be much shorter, 5 months versus 12 months. It appears the low recipiency rate of the past decade, roughly 10 percent, will decrease even further under this new program. Further, coverage of the labor force will most likely not change significantly. Thus, the new program will pay higher benefits but to fewer monthly beneficiaries. To provide income support to the unemployed, other programs and measures besides UC will continue to be needed in Chile as they are needed throughout the Latin American and Caribbean region.