MercoPress. South Atlantic News Agency

IMF describes Chile's performance “exemplary”

The latest report from the International Monetary Fund describes Chile's economic and financial performance as “exemplary” and is full of praise with words such as successful, brilliant, prudent, transparent, strict and enviable.

According to the report Chile in the last fifteen years has shown an extraordinary "economic success" with the implementation of prudent structural reforms and economic policies.

In that period the country has grown an average 5.5% annually; per capita income has tripled in US dollars and the poverty rate was cut in half to 18%. However the IMF points out to the fact that "inequality in income distribution remains high".

The annual report agreed with the country involved is done in the context of Article IV of the IMF chart which contemplates the surveillance of economic events in the different world regions.

IMF commends Chilean authorities for their continued exemplary implementation of sound macroeconomic policies, based on strong and well-established institutions, and reinforced by strict adherence to the structural fiscal surplus rule, a highly-regarded inflation targeting framework, increasing trade integration, and a robust financial system.

"These policies have yielded substantial benefits, including low inflation, sustained economic growth with an attendant significant reduction in poverty, and strengthened investor confidence and resilience to external shocks".

In the near-term outlook appears bright, with the continuing strength of domestic consumption and exports expected to contribute to rapid economic growth, at a time when investment is returning to more sustainable levels. "The risks to the outlook appear broadly balanced and the authorities have appropriately recognized the need to gear macroeconomic policies toward managing the copper price boom effectively".

The report also points out that the floating exchange rate regime has allowed the Chilean economy to adjust smoothly to external shocks. The transparent policy framework, with no central bank intervention in the foreign exchange market and supported by fiscal prudence, has helped sustain competitiveness, as evidenced by the continued strength of non-traditional exports.

"Continued fiscal restraint, together with the investing of the fiscal surpluses abroad, would help limit upward pressures on the currency", says IMF.

IMF supports Chile's medium term emphasis on promoting sustained growth and reducing income inequality with reforms to improve pre-school coverage for low-income groups, enhance funding for tertiary education, and promote research and development. However IMF suggests more flexibility is needed in the labour market in order to increase employment opportunities and address the still high unemployment rate, especially among the young.

"Progress in these areas will be key to enhancing productivity and competitiveness and to supporting further economic diversification in the medium term".

Finally the report praises Chile's leadership role in opening markets through comprehensive and sustained trade and financial market liberalization as well as the implementation of recent bilateral free trade agreements and strong commitment to multilateral trade liberalization Chile's finances show a budget surplus equivalent to 4.75% of GDP in 2005, compared to 2.5% of GDP in 2004; public debt including Central Bank and government owned companies dropped from 13% of GDP to 7.5% of GDP in 2005. Growth forecast for 2006is in the range of 5 to 6%, following last year's 6.3%.