Chile Finance Minister Strikes Optimistic Note Amid Slowdown

  • Valdes comments on growth and tax take in interview in Davos
  • Chile can return to growth seen before the copper boom: Valdes

Chile has done it before and can do it again, said Finance Minister Rodrigo Valdes, dismissing concern that sluggish growth is the new normal for the world’s largest copper producer.

“There are no major reasons to think that Chile can’t return to the growth it saw a few years ago, before the copper boom,” Valdes said in an interview in Davos. “In the long-term, things haven’t changed that much.”

His comments strike a note of optimism in a country where business confidence has fallen to the lowest levels since the 2009 global economic crisis, following a slump in investment in the copper industry. As recession grips regional powerhouse Brazil, investors will start to differentiate those countries that have maintained economic stability, Valdes said. Chile’s economy doesn’t appear to have “points of vulnerability,” he said.

Gross domestic product grew an average 5.5 percent a year in the 14 years through 2003, when copper was half the price it is now. That means an estimated growth potential of 3.6 percent is not unrealistic in the medium-term, Valdes indicated. The economy expanded 2.2 percent in the third quarter compared with the previous year and this government has forecast 2.75 percent for this year.

Chile’s economy looks set to maintain “moderate growth” for now, as investment transitions away from the mining industry and into other areas such as forestry and the wine industry, Valdes said. Already, the strength of the jobs market has shifted to the south of the country, he said, adding that both the labor market and tax revenue are showing “a certain domestic dynamism.”

The government’s productivity agenda is key to reviving growth, Valdes added. It’s not the government’s job though to decide on the industries of the future; that is the job of private industry, he said.

The collapse in copper prices is forcing the government to spend more carefully and slow some of the increases in expenditures it had planned.

“The fiscal situation requires adjustments, but it is solid,” Valdes said.

Helping that process is strong growth in government revenue last year. A series of tax scandals involving leading politicians and bankers has prompted many wealthy people to pay more taxes, while a tax reform approved in 2014 is already boosting receipts, he said. More immediately, a partial tax amnesty of funds held abroad has encouraged the country’s rich to register some $20 billion in assets, boosting revenue by $1.5 billion.

Last year saw “a good tax take, there is no doubt,” Valdes said.

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