Chile is planning a new package of economic measures to tackle the “huge” problem of inflation and to find a “better way” to help the country’s poor, president Michelle Bachelet said this weekend.
Although she stayed tight-lipped on the details, Bachelet said the government needs to take action because of the impact the rising cost of living was having on their poorest in society.
“Inflation has been a large problem but it is mainly down to external factors and mainly oil prices and food prices,” Chile’s Socialist president said during a visit to the London School and Economics in London.
“We have not only a problem with inflation, but the dollar is down and that gives us a problem with our exports. It is hard to balance, to maintain a competitive dollar and fight against inflation,” Bachelet said in a speech on the need for greater state intervention.
She said her government had taken measures such as cutting taxes on diesel and petrol and eliminating a tax on small businesses that she had been an obstacle to their expansion. “We have done a lot of things,” she said.
But she said the government was “analysing” the current situation and said that more measures were in the pipeline. “[We will take] other measures because inflation affects the poor people so we will take other measures. We can’t resolve international problems, but we have to help people in a better way,” she said.
Inflation in Chile surged to 7.8% in 2007, its highest rate in 12 years, from only 2.6% in 2006. The central bank forecasts inflation of 4.5% in 2008, above its 2-4% target.
The central bank raised its base rate to 6.25% in January, taking it to the highest level for six years. It is expected hike it again to 6.5% at its 10 April meeting if figures show inflation rose sharply in March.
In her speech, president Bachelet laid out the case for more state intervention by Latin American governments to boost the livelihood of the poor and to offset the failures of the free market.
She said that while Chile was proud of a solid record of economic growth and stability, economic growth alone could not resolve problems of poverty and income inequality. “We can see the results of state action,” she said. Government intervention has halved the wealth gap between the richest and poorest fifths in Chilean society.
“We can change things – we can change what is not fair, and we can do it from the state,” she said. “Our citizens continue to look to us to solve the problems that the market cannot.”
President Bachelet, who was elected on a tide of popularity two years ago but who has since suffered a series of political setbacks, said that democracies in Latin America had become “over confident and self complacent” and were not responding to popular demand for change.
In comments that could be seen as criticism of the nationalistic policies of Hugo Chavez of Venezuela, she pointed to a rise in populism and a “democratic reversal”.
“We struggled for so long to be free, that we forgot to be fair. And democracy requires equal opportunity that comes from access to education, healthcare, and housing,” she said.
“The role of the state must be reassessed. The complex challenges of today’s world require more state, not less state, but this must be an efficient state which facilitates implementation of strong and well targeted social policies to remedy the insufficiencies of the market.”