Chile's overall economic performance during 1990–97 was very strong. By early 1998, Chile faced the difficult combination of a widening external current account deficit and a slowdown of capital inflows. The authorities scaled back expenditure plans and tightened monetary policy strongly to prevent a large depreciation of the currency. Executive Directors welcomed the new three-pillar framework for policies consisting of conservative, rules-based fiscal and monetary policies, greater emphasis on sound supervisory and regulatory frameworks, as well as new social policies.
July 7, 2000
1. This buff contains information which has become available since the staff report (SM/00/116) was issued. This information does not modify the thrust of the staff appraisal.
2. The monthly index of economic activity (IMACEC) increased in April by 6.4 percent (year-on-year), bringing the rate of growth in the first four months of the year to 5.7 percent. In May industrial production grew by 11.3 percent (year-on-year). Recent figures for industrial and retail sales suggest that the recovery of domestic demand may be slowing, although imports have continued to grow strongly. Unemployment increased moderately in April and May due to seasonal factors; the seasonally adjusted unemployment rate remained roughly unchanged. The 12-month inflation rate continued to increase gradually, from 2.3 percent in December 1999 to 3.6 percent in May 2000, while underlying inflation (which excludes the prices of fuel and some food items) only increased from 2.1 percent to 2.7 percent. Recent official projections for end-2000 point to an inflation rate in the range of 4–4.5 percent, with underlying inflation of about 3.5 percent.
3. Figures on the central government accounts for the first quarter of the year are in line with the staffs projections for the year as a whole. In the first quarter of 2000 the central government balance was in surplus by 1.6 percent of GDP, compared with a deficit of 0.2 percent of GDP a year earlier (using the staffs presentation of the fiscal accounts). Revenues increased by over 15 percent in real terms (year-on-year), mainly reflecting a recovery in tax collections, while expenditure increased by 7 percent in real terms.
4. The evolution of the trade balance in the first five months of 2000 was broadly in line with the staff’s projections for the year as a whole. In this period, imports grew by 26 percent (year-on-year) in U.S. dollar terms, while exports expanded by 20 percent.
5. On June 9 Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay) and associate members (Bolivia and Chile) agreed on various steps to advance in their process toward macroeconomic coordination and convergence. In particular, they agreed to start publishing fiscal statistics on the basis of a common methodology by September 2000, and to jointly set targets for inflation and for several fiscal indicators by March 2001.