Chile’s economy is facing internal and external challenges that could endanger its recent strong growth expansion, Finance Minister Felipe Larrain told Emerging Markets on Wednesday.
The economy is forecast to expand by 4.5% this year, unemployment has fallen to 5.7% – a 30-year low – real wages are up and inflation is 2%, one of the lowest in emerging markets.
“We are in a unique position. We have strong growth, significant job creation and very low inflation,” Larrain said in an exclusive interview. Chile’s income per capita is hovering just below $20,000 in purchasing power parity.
Chileans will go to the polls on 17 November to elect a new president to replace current President Sebastian Pinera. Former President Michele Bachelet is the frontrunner, with the strongest competition coming from Evelyn Matthei, who served as labour minister in Pinera’s government.
If one candidate does not receive 50% of the vote the top two candidates will face each other in a runoff on 15 December. There are nine other minor candidates in the race.
“Growth is not guaranteed,” said Larrain. “We have had consensus in terms of economic policy for the last 20 years. Every administration has its own emphasis, but there needs to be continuity on the basics. There needs to be a balance between continuity and change, but there cannot be a significant break from where we are today.”
Most analysts do not expect Bachelet to make sweeping macroeconomic changes if she is elected to another four-year term. A Matthei win would ensure a repeat of the Pinera policies.
Internal issues are less important to Larrain than impacts from possible external shocks. A slowdown in China and dip in commodity prices are among these, as Chile is the world’s leading copper producer, but Larrain’s biggest concern is the United States.
He said the “combination of problems coming from the United States is a big cause of concern. The shutdown and the possibility of default are the biggest threat to the global economy right now.”
Gonzalo Reyes, of the IM Trust investment firm in Santiago, said that while Chile will see a deceleration from initial projections, the economy is still expanding at a solid rate.
IM Trust forecasts GDP slightly higher than official projections. “The Chilean economy is still performing well, despite the external pressures. We do not expect any problems due to a combination of factors, including the continued strength of exports,” he said.
Larrain is also upbeat about Chile’s efforts to solidify its international role through the Pacific Alliance, a free trade effort that also includes Colombia, Mexico and Peru, and its participation in the 12-nation talks for the Trans-Pacific Partnership (TPP).
The Pacific Alliance countries agreed in early October to eliminate tariffs on 92% of goods, with a pledge to eliminate all barriers in seven years. The TPP is the most ambitious trading block currently under negotiation.
Representatives of the 12 countries, meeting on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in early October in Bali, Indonesia, said they would attempt to have the general framework for the agreement finished by the end of this year.