Chile’s President-Elect Sounds the Alarm Amid Economic Boom
(Bloomberg) -- President-elect Gabriel Boric warned Chile’s consumer spending boom was unsustainable and that public finances were under strain, pledging to make changes in a “gradual” way as one of the world’s fastest growing economies faces a reality check.
Growth should be driven by investments, while protecting the environment, Boric told business leaders Thursday in the biggest economic speech since his election win. Boosting government revenues through a tax reform while simultaneously providing investors with legal guarantees will help make the expansion of activity more lasting and also solve social ills, he said.
“Our current status quo slows economic development and deepens social discontent,” Boric said. “If we don’t advance with material solutions, then we won’t solve the causes of the social discontent.”
The warning on the economy will come as little surprise to business leaders. Gross domestic product grew about 12% last year, a record for the South American nation, driven by fiscal stimulus and early pension withdrawals. The central bank has forecast expansion will slow to near 2% this year. It’s an inauspicious outlook for Boric’s first time in office that starts on March 11.
And as growth slows, policy makers are set to hike interest rates again this month, extending increases totaling 350 basis points since July as annual inflation soars above target.
Boric, a 35-year-old former student leader, won December’s election on pledges to improve equality in an nation that’s both one of Latin America’s most prosperous and a global financial market favorite. Investors are waiting for him to announce his cabinet in about a week.
Boosting productivity and recovering formal jobs, especially for women and youth, represent top priorities, Boric said Thursday. The incoming administration’s changes will be gradual and will be implemented with fiscal responsibility, he said, pledging to reduce the structural deficit from 2023 onwards.
The new government knows that partnerships with the private sector will be key to drive investments, according to the in-coming head of state. Boric said his team will always be open to dialogue with different segments of society.
His speech comes a day after the current administration awarded controversial lithium contracts. The timing drew criticism from both opposition groups and Boric, who told reporters on Wednesday that the decision resembles “those laws that tie you up at the last minute when a government is about to end.”
In remarks to journalists following today’s speech, Boric said there was no agreement on the lithium contracts between the incoming and outgoing administrations. He added that making important policy decisions at the last-minute is not ideal.
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