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IMF Country Report No. 14/218
CHILE
2014 ARTICLE IV CONSULTATION - STAFF REPORT; PRESS RELEASE; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR CHILE
July 2014
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2014 Article IV consultation with Chile, the following documents have been released and are included in this package:
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on June 27, 2014, following discussions that ended on May 9, 2014, with the officials of Chile on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 11, 2014.
An Informational Annex prepared by the IMF.
A Press Release summarizing the views of the Executive Board as expressed during its June 27, 2014 consideration of the staff report that concluded the Article IV consultation with Chile.
A Statement by the Executive Director for Chile.
The following document has been or will be separately released.
Selected Issues Paper
The publication policy for staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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©2014 International Monetary Fund
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CHILE
STAFF REPORT FOR THE 2014 ARTICLE IV CONSULTATION
June 11, 2014
Key Issues
Politics: President Bachelet won the Presidential election on a platform to foster inclusive growth and reduce inequality. Her government took office in March 2014 and is launching an ambitious policy agenda that includes important reforms in several areas, including taxation, education, productivity, and energy.
Outlook and risks: Chile’s global environment is shifting, with a dimmer outlook for its main export, copper, and normalization of global monetary conditions. Growth has slowed markedly, resulting in a modest output gap. The peso has depreciated, feeding into inflation. Staff projects growth to bottom out in 2014 and then gradually recover. Key risks relate to a large and lasting drop in copper prices and global financial volatility.
Policy mix: The freely floating peso is working as a shock absorber and will support the economic recovery. The policy mix with broadly neutral fiscal and accommodative monetary policy is appropriate. Room for further monetary easing has narrowed but space remains if domestic demand flounders, so long as inflation expectations remain well anchored. On fiscal, given the strong public finances, automatic stabilizers should be allowed to operate unimpeded and there is space for stimuli in the event of a major downturn. The commitment to close the structural fiscal deficit by 2018 is appropriate and should be phased in a way that avoids undue drag on the recovery. Should risks materialize, the freely floating currency is the first line of defense.
Growth and equity reforms: Achieving strong growth while reducing inequality will require structural reforms. The authorities’ agenda focuses on the right areas but many details remain work in progress. Clarity on the details, timetables, and prioritization will reduce uncertainty and the risk of delays.
Financial stability: Risks to financial stability appear contained, but it will be important to push through with regulatory reforms underway, including initiatives currently in Congress. Further effort will be needed to close regulatory gaps, in particular bank capital requirements, relative to international benchmarks.
Approved By
Charles Kramer and Tamim Bayoumi
Discussions were held in Santiago during April 28–May 9. The staff comprised Mr. Erickson von Allmen (head), Ms. Petrova, Mr. Rodriguez-Delgado, Ms. Ture (all WHD), and Mr. Arregui (MCM) with research assistance from Mr. Tawfik and editorial support from Ms. Addo and Mr. Moreno. Mr. Schatan (FAD) provided support from headquarters. Mr. Rojas-Olmedo (Executive Director, OEDAG) and Mr. Carrière-Swallow (Advisor, OEDAG) attended selected meetings. The mission met with Central Bank Governor Vergara and Ministers Arenas (Finance), Céspedes (Economy), Eyzaguirre (Education), Pacheco (Energy), and Blanco (Labor), and other senior officials, think tanks, academics, representatives from the financial and business community, and international organizations.
Contents
CONTEXT
CURRENT CONDITIONS
OUTLOOK AND RISKS
POLICY IMPLICATIONS
A. Policy mix
B. Fostering strong and inclusive growth
C. Reinforcing financial stability
D. Enhancing the fiscal framework
STAFF APPRAISAL
BOXES
1. Spillover Transmission Channels and Effects
2. Tax Reform
3. Electricity Sector in Chile
FIGURES
1. Past Growth Performance and Challenges Ahead
2. Financial Market Developments
3. Cyclical Position
4. Monetary Policy and Inflation
5. Fiscal Policy and Public Finances
6. External Stability
7. Macro-Financial Stability
8. Real Estate Devlopments
9. Spillovers and Exposures
TABLES
1. Selected Social and Economic Indicators
2. Summary Operations of the Central Government
3. Summary Operations of the Public Sector
4. Balance of Payments
5. Monetary Survey
6. Medium-Term Framework
7. Indicators of External Vulnerability
ANNEXES
I. Past Fund Advice
II. A Closer Look at Investment
III. Recent Developments in Corporate Debt
IV. Risk Assessment Matrix
V. 2011 FSAP Update: Status of Main Recommendations
VI. Debt Sustainability Analysis
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CHILE
STAFF REPORT FOR THE 2014 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
June 11, 2014
Prepared By
The Western Hemisphere Department
Contents
FUND RELATIONS
STATISTICAL ISSUES
WORLD BANK—FUND COUNTRY-LEVEL WORK PROGRAM UNDER JMAP
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Press Release No. 14/357
FOR IMMEDIATE RELEASE
July 22, 2014
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