Chile: Following Recent Consultation, the IMF Publishes Its Findings
Under Article IV of its Articles of Agreement, the IMF holds annual bilateral discussions with its members to review economic developments and policies.
Recently, it was the turn of Chile and on July 22nd, the IMF issued a press release enclosing its findings - a brief summary of which is listed below:
- Politics: it comments that the newly elected President Bachelet has an ambitious policy agenda that includes reforms in taxation, education, productivity and energy.
- Outlook & Risks: the IMF highlights the shifting position of Chile in a global market where weaker markets for copper, its main export, will have an impact. Growth has slowed resulting in a current output gap. The Peso has depreciated leading to inflation and the IMF predicts that growth will bottom out in 2014, but will recover during 2015.
- Policy Mix: the Peso is free floating and is capable of supporting an economic recovery and there is still room for further quantitative easing should this be required. Public finances are strong and a forecasted close to the fiscal deficit by 2018 is realistic and should be capable of being delivered in a way that avoids further drag on the economy.
- Growth & Equity Reforms: major structural reforms will be required if Chile creates strong growth while meeting its targets for greater equality and the IMF recommends that further clarity on deadlines and priorities will reduce uncertainty and delays.
- Financial Stability: risks to financial stability are contained but it recommended that regulatory reforms currently underway need to be pushed through. It is also recommended that regulatory differences relative to international benchmarks should be addressed – such as bank capital requirements.