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
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 period.
"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
Sovereign Bond of the Year 2013 for its $1.5bn 2022/2042