Chile FinMin Larraín warns Bachelet government on growth
A shift away from policies that promote economic expansion could be counterproductive for Chile, cautions finance minister Felipe Larraín in an interview with LatinFinance
Chile's finance minister Felipe Larraín has urged the
incoming administration of Michelle Bachelet not to abandon
pro-growth policies, following campaign pledges of major tax
and education reforms to redress the country's social
divisions. "I'm concerned about one thing: growth," he said in
an interview with LatinFinance. "So I would say [to
the incoming administration] 'don't forget growth.' Growth is
essential in trying to retain the opportunities for investment
in our economy, to develop our entrepreneurs, to give them new
ways to find new opportunities."
Bachelet, who ran on a platform of social policies to address a
deep divide between rich and poor, was elected December in a
landslide victory. Analysts say an overhaul of the tax regime -
which is expected to include a hike in corporate taxes to 25%
from 20% - is likely to be among the laws Bachelet will
prioritize as she seeks extra funds for social reforms upon
taking office in March.
||Chilean finance minister Felipe
Source: World Economic Forum
But Larraín warned that shifting away from policies to
promote economic expansion could prove counterproductive. "We
need to be talking about how to stimulate investment and keep
unemployment low," he said, adding that a conservative fiscal
policy in recent years was critical to creating an environment
conducive to job creation and growth.
"We maintained growth of spending less than GDP growth, we
restrained our spending by $6bn per year," Larraín said.
"We created an environment conducive to growth." He added that
the outgoing center-right government of Sebastian Piñera
had reduced unemployment to 5.7%, its lowest level in 30 years,
by boosting Chile's average GDP expansion rate since 2010 to
5.4%, compared to a global rate of 4% over that
"Returning the Chilean economy to solid growth is one of the
most important objectives we have achieved," Larraín
said. But he denied that Bachelet's victory reflected an
indictment of his government's policies. "I don't think it's an
indictment. We faced a formidable candidate and politics is
complicated and it would have been tough for any candidate [to
Chile, Larraín said, is facing "a middle-income trap"
in which it is increasingly difficult to meet the demands of a
growing middle class. "University students want free higher
education and we disagree, we think that is a mistake," he
The new administration is likely to face a similar set of
challenges in managing public expectations as those that dogged
his own government, Larraín said. "There is a shift to
the left in the program but one thing is what you say in the
campaign the other is what you can actually do in government,"
"One thing remains to be seen: how this government manages
expectations. I wish them well but this is the fundamental
problem. Managing it is not going to be easy."
The Republic of Chile won LatinFinance's award for
Sovereign Bond of the Year 2013 for its $1.5bn 2022/2042