MercoPress. South Atlantic News Agency

IMF cuts Chile's growth estimate.

In spite of praising the achievements of the Chilean economy, an IMF staff mission visiting Chile ended its tour lowering the country's growth estimate for 2004 from 4,8 to 4,5%.

"Chile's sound macroeconomic policy framework (floating exchange rate, inflation targeting, and a fiscal structural balance rule) and strong fundamentals have largely insulated the country from external shocks, and medium-term prospects remain favourable. Recent trade agreements should have a positive impact on economic activity over the next few years, both through better access of Chilean exports to foreign markets and the added incentives for foreign direct investment", reads the preliminary report from the IMF June mission that strongly supported macroeconomic policies and objectives.

"Regarding fiscal policy, the authorities have acquired high credibility in meeting fiscal targets consistent with the structural balance rule and, in this context, the mission supported the plan to increase reliance on the VAT (from 18 to 19%), and achieve further economies in expenditures in line with lower import tariffs".

The IMF mission also praised Chile's inflation targeting framework that has successfully anchored inflationary expectations and increased the economy's resilience to external shocks while maintaining price stability. "Inflation expectations remain well within the target band and, in the staff's view, the current monetary policy stance is appropriately balanced in light of the still-tentative recovery in Chile and in the global economy. The central bank has conveyed its readiness to adjust the monetary policy stance-in either direction-as necessary, to keep inflation inside the target band".

Finally the IMF release says that the staff was encouraged by the progress being made in moving ahead with modernization of the state, further improving transparency, and implementing capital market reforms, all of which have benefited from a growing consensus among the public and private sectors. "The state modernization agenda, in particular, if fully implemented, should help to increase efficiency in the public sector and overall competitiveness. In addition, the mission strongly supported the government's pro-growth agenda and expected that its full implementation would help strengthen productivity".