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Thursday, September 20 de 2018

Minister of Finance on the IMF’s Article IV Concluding Statement: "It is a sign of confidence in what we are doing"

The Fund raised its growth forecast for the Chilean economy from 3% to 3.4% in April; from 3.4% to 3.8% in July and now, in September, from 3.8% to 4%.

The Minister of Finance, Felipe Larraín, commented today on the conclusions of the recent visit of the technical teams of the International Monetary Fund (IMF) in the context of the Article IV review.

In the concluding statment, the international body adjusted the Chilean economy’s 2018 growth forecast for the third consecutive time this year, this time highlighting the upside risk the government's agenda poses to the medium-term growth outlook, as well as in raising living standards in Chile.

Specifically, the IMF raised its growth projection from 3% to 3.4% in April; from 3.4% to 3.8% in July and now, in September, from 3.8% to 4%.

The Finance Minister said that the IMF’s statement recognizes that the Chilean economy is recovering after several years of low growth and that the recovery is widespread across sectors.

"The IMF considers that this recovery is based on the strength of consumer and business confidence, and also sees a considerable recovery in both mining and non-mining sectors, therefore, this goes far beyond the mining cycle", said the Minister. He added that particularly in the second quarter of this year there was a very significant uptick in non-mining sectors.

The international financial institution maintained its 2019 GDP forecast for Chile at 3.4%. The Minister specified that this figure is lower than market projections, which are currently at 3.8% according to the September Central Bank’s Economic Expectations Survey.

Minister Larraín highlighted the fact that the IMF revised this year’s growth forecast for Chile in a context in which it lowered its global growth forecast. In fact, he stressed that the OECD, in its Economic Outlook published this morning, downgraded the estimates for the world economy for 2018 and 2019, from 3.8% to 3.7%.

Pro-Government Agenda

According to the IMF’s statement, the greater growth of the economy issupported by the government's reform agenda, which gives an upward bias to the medium-term growth outlook. "The authorities are deeply involved in a broad reform agenda that should raise growth and living standards," the IMF claims.

"The IMF confirms that the government's agenda and an early recovery of investment add an upward bias to the medium-term projections of the Chilean economy, which would increase our income and our standard of living," said Minister Larraín.

The Fund’s revised estimations come in a context in which Chilean authorities have raised their medium-term projections. This year the Committee of Experts on Trend GDP raised its estimate for medium-term growth from 2.6% to 2.9%, while the Central Bank increased its forecast of potential growth for the Chilean economy from 2.7% to 3.1% "Not only are the projections of headline growth being revised upwards, but also the potential and the trend," explained Minister Larraín.

Among the outstanding reforms the government is working on, the IMF recognized the contribution of the Tax Modernization (MT) bill. It argued that returning to a single and fully integrated system would boost economic growth and investment, by accelerated depreciation measures and measures to expedite the VAT refund.

"The international bodies, which are not in the local political discussion, are indicating that the Tax Modernization bill has a marked emphasis for growth and investment", highlighted Minister Larraín.

Other initiatives led by the Ministry of Finance and mentioned in the IMF report are the General Banking Law bill, which the body recommended to approve as soon as possible, and the efforts to move forward on a bill to strengthen cybersecurity.

The IMF also highlighted the government's commitment to fiscal matters: "The announced gradual fiscal consolidation should improve the credibility of the policies, achieving a balance between debt stabilization and the treatment of development needs and social spending," notes the international organization. In this way, it projected that the increase in public debt would stabilize by 2021.

In addition, the agency proposed further strengthening fiscal institutions, as addressed by the Autonomous Fiscal Council (CFA) bill.

"This is a sign of confidence in what we are doing," said Minister Larraín.

2019 Budget and increases in fuel prices

When consulted by the main elements of the 2019 Budget project, the Minister indicated that this initiative will be in line with the fiscal commitment made by the current administration. "That means that this year the structural deficit should fall to 1.8% of GDP, and next year to 1.6% of GDP. The only way to achieve this, in a context in which we have had to face expenditure pressures that had not been accounted for, is by containing expenditures more generally," the authority said.

Minister Larraín warned that it is not possible to think of a very strong expansion of spending. "What we have to do is spend responsibly, spend better, improve the efficiency of the public sector, and make sure that the priorities of President Piñera's government are well represented," he explained.

He added "we cannot do everything we want. There are not enough resources to meet all the needs we have as a country, and that's why a central part of what a budget has to do is prioritize."

Regarding the prices of fuels that have experienced consecutive increases in recent weeks, Minister Larraín highlighted the mitigating impact of the Fuel Price Stabilization Mechanism (Mepco). "If there was no Mepco, the prices would have increased more than CLP$ 20 this week," he said.

The authority also made a call to quote and compare prices. "There is a website of the National Energy Commission that operates very well and that lets you know where to find the cheapest station for each fuel. The price differences are strong, up to more than CLP$ 150 of difference," said the authority, referring to the website http://www.bencinaenlinea.cl

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