Arenas Debates More Stimulus as He Pledges Chile Balanced Budget

Chile’s Finance Minister Alberto Arenas opened the door to extending this year’s fiscal stimulus to the years ahead, while reiterating the government’s commitment to balancing the structural budget by 2018.

“A debate on counter-cyclical fiscal policy for more time in Chile is a debate that is welcome and we will be making an evaluation,” Arenas said Sunday in an interview in Washington, where he is attending the International Monetary Fund and World Bank’s spring meeting.

The government has budgeted to raise fiscal investment by 27.5 percent this year as it tries to revive an economy growing at its slowest pace since the 2009 recession. Sluggish expansion has led to concern the government will struggle to finance its spending commitments and balance the budget by 2018, as pledged by President Michelle Bachelet.

As many as 150,000 students took to the streets last week to demand the government fulfill its promise to fund free higher education for all. The march came after the government pledged $1.5 billion to rebuild areas of northern Chile devastated by recent floods.

Gross domestic product grew 1.8 percent in the fourth quarter from the year earlier after expanding 1 percent in the previous three months.

Arenas said he had discussed the best role for fiscal spending with IMF officials.

Still, with government receipts rising in line with forecasts after last year’s tax increases, Arenas said “there is no relevant information as of today that makes us think that in the budget of 2018” we won’t have a structural balance of zero.

Chile’s structural deficit takes into account cyclical swings in commodity prices and economic growth.

Fiscal Strength

Arenas stressed Chile’s economic stability and how it is seen by foreign investors and institutions. “We have a robust fiscal position,” he said.

Chile is the only major country in Latin America with net savings. The country’s economic stabilization fund totaled $14.69 billion at the end of last year, while the Pension Reserve Fund had $7.94 billion.

The government wouldn’t need to tap into either fund this year, Arenas said.

Chile ended 2014 with a structural deficit of 0.5 percent of GDP and an overall shortfall of 1.6 percent of GDP. The overall deficit is forecast to expand to 2 percent this year.

With growth forecast to pick up in the second half of the year, any rise in unemployment would be “absolutely transitory and seasonal,” Arenas said.

Chile’s jobless rate has remained lower than analysts forecast, reaching 6.1 percent in the three months through February compared with 5.7 percent at the end of 2013.

While fiscal spending is driving growth this year, the government remains committed to a public/private partnership to boost investment over the next few years, Arenas said.

“Private investment is the motor of growth in the mid-term,” he said.

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