Chile Will Keep On With Fiscal Consolidation, Finance Chief Says

Matthew Malinowski, Anna Edwards and Mark Cudmore
·2 min read
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(Bloomberg) -- Chile’s government plans to continue with its fiscal consolidation efforts next year, when it forecasts that economic growth will start to accelerate, the country’s finance minister said in an interview.

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Although Chile’s annual economic growth for the full year in 2023 will be lower than in 2022, the country will see an upward trend on a quarter-to-quarter basis, Mario Marcel said in a Bloomberg Television interview Monday. The government is focused on reducing debt levels, said Marcel who is in London to meet with global investors at an annual conference.

“We intend to keep the path of fiscal consolidation over the next three years so as to stabilize government debt at around 40% of GDP by 2026,” said Marcel, a University of Cambridge-trained economist who previously served as central bank president.

Chile is grappling with the after effects of last year’s deluge of cash transfers and early pension withdrawals, which together overheated of one of Latin America’s richest nations. The central bank has raised its interest rate to the highest in over two decades while the new government cut spending by about 25%. As a result of the stimulus drawback, the economy is facing recession.

Marcel said the government expects any proposal for fresh pension fund withdrawals would be rejected by Congress.

Consumer prices in November rose at double the pace expected by analysts, Chile’s national statistics agency reported on Wednesday, tempering market bets for borrowing cost reductions. An hour later, the central bank raised its inflation forecasts and also warned of a deeper economic contraction in 2023.

Faced with a tough economic outlook at the start of next year and low approval ratings, President Gabriel Boric’s administration is weighing another round of focused aid to help the most vulnerable while also keeping spending in check.

Chile is far from the only emerging market faced with inflation risks. Consumer prices rose much more than expected last month in Peru and Colombia.

While Brazil’s inflation has tumbled, President-elect Luiz Inacio Lula da Silva’s spending plans may stoke steeper cost-of-living increases next year.

Going forward, Chile stands to benefit as its top trading partner China loosens rules to combat the spread of Covid-19. Locally, Marcel is also leading efforts on tax and pension reforms, both of which are being debated by congress.

The peso has gained over 5% in the past month while five-year credit default swaps, a measure of investors’ perceived risk, have dropped in a sign that uncertainty is easing.

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