Chile announced a stimulus plan increasing spending by four billion US dollars in an effort to create jobs and prop the economy. This means that for the first time in six years Chile will run a budget deficit, 2.9% of GDP.
President Michelle Bachelet announced the package of spending and tax cuts in a televised address after the Central Bank revealed that growth in the twelve months to November had slowed to less than 0.1%. In a later meeting at Government House with President Michelle Bachelet all political leaders said they supported the package and promised to act in consequence. The measures should allow the Chilean economy to grow between 2 and 3% this year, creating 100,000 jobs, according to an e-mailed statement from the Finance Ministry. Chile will also appeal to some of the 22 billion USD of cash the country has invested in funds overseas from windfall earnings of soaring international copper prices, Chile's main export item. Chile managed an extraordinary 8.8% budget surplus in 2007 and in the first nine months of this year saved about 5.1% of GDP, revealed Finance Minister Andres Velasco. Chile is currently a net international creditor for the first time since independence from Spain in 1810. The government is planning to increase spending in 2009 by 1% of GDP and cut taxes by the same amount, according to the Finance Ministry statement. Another one billion US dollars will be invested in state-owned copper producer Codelco, the world's biggest miner of the metal. The plan also includes subsidizes jobs for young people on low incomes, hand out 62 USD bonuses to 1.7 million families and spend an extra 700 million USD on public works. "We will pave streets and roads, we will refurbish schools, we will build clinics, we will improve stadiums and we will greatly expand housing programs", promised President Bachelet. For the implementation of the stimulus package Bachelet will have to suspend Chile's fiscal rule, guidelines first introduced in 2000 which force governments to aim for a budget surplus, calculated using a long-term estimate for copper. For 2009 the surplus target will be zero from 0.5% of GDP. The Chilean economy growth slowed in November as industrial output fell 5.7% in November, the most since the country's last recession in 1999. Sales of durable consumer goods slumped 24% and metal manufacturing contracted 30%. Consumer prices fell in November for the first time in 21 months. The stimulus plan received the support from the whole political spectrum with Parliament representation. "We expect the package to be implemented as promised and not be influenced by electoral concerns in an electoral year", said Carlos Larraín head of one of the main opposition groups. Another opposition leader Juan Antonio Coloma said that overall "we support the measures announced, although there are some details which will be analyzed in depth; we only regret that the government was slow reacting to the global situation". The representatives from the ruling coalition Concertación praised the package as "imaginative and special", although others demanded more "support for small companies" and a particular effort in ensuring "all comptrollers effectively monitor the spending of all these resources".