Chile's Government Cuts Spending Plans as Copper Crimps Revenue

  • Chile to reduce planned spending by 380 trillion pesos ($550m)
  • Health-care will be spared reductions in expenditure

Chile’s government is scaling back spending plans for this year after the price of copper slumped, as it looks to contain a widening budget deficit and bolster business confidence, Finance Minister Rodrigo Valdes said.

Fiscal spending will rise by 1 percent less than originally planned, or 380 trillion pesos ($550 million), Valdes told reporters in Santiago Monday. The healthcare ministry will spared the reductions, he said.

The government is tightening its belt after copper, which accounts for more than half of exports, fell below $2 per pound earlier this year for the first time since 2009, undermining fiscal revenue. The reduction would have been bigger but for better-than-expected tax income last year due to reforms that reduced evasion, said Valdes, who stressed the cuts were less than those implemented by many other countries in the region.

“This is a moderate adjustment,” the finance minister said. Current expenditure on items such as wages and research reports would concentrate 71 percent of the reduction, while investment will represent only 29 percent.

President Michelle Bachelet highlighted the deterioration in the global environment for the need to reduce planned spending.

“When the economy gets difficult, like now, to make investments like these becomes more difficult,” Bachelet said on her twitter account. “At times, it is necessary to make adjustments.”

Earlier today, the government reduced its forecast for the average copper price over the next ten years to $2.57 per pound from $2.98. The estimate is used for long-term budget planning, with the government ultimately aiming for a balanced “structural” budget.

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