IMF rates Chile at top of emerging markets, says reforms still necessary

SANTIAGO (Reuters) - The International Monetary Fund (IMF) hailed Chile’s strengthening economy in a report published on Friday while encouraging President Sebastian Pinera to push forward with promised structural reforms.

FILE PHOTO: The International Monetary Fund (IMF) logo is seen outside the headquarters building in Washington, U.S., as IMF Managing Director Christine Lagarde meets with Argentine Treasury Minister Nicolas Dujovne September 4, 2018. REUTERS/Yuri Gripas/File Photo

In a statement following its annual consultation with Chile, the IMF praised Pinera’s proposed reform drive, but added that “a broader set of reforms would speed up the transition to advanced economy status.”

The bank cited the need to improve innovation capacity, research and development investment and labor flexibility to boost productivity.

Conservative billionaire Pinera took office in March with a strong mandate to make changes to the country’s pension system and labor laws and simplify the tax code.

Pinera had also promised to transform Chile into a developed nation within a decade.

The bank praised his early efforts, which it said were aimed at “re-invigorating investment and economic growth,” but warned a “divided Congress may constrain the reform space.”

In the report, the IMF also urged the central bank to proceed with caution in raising interest rates.

Chilean central bank policymakers ended a long cycle of expansive monetary policy last month, increasing the benchmark interest rate by a quarter percentage point amid an uptick in domestic activity.

The IMF said “caution is warranted in deciding the pace of monetary policy rates normalization,” noting that unemployment and slow wage growth had dragged on core inflation.

The fund’s overall outlook, however, was glowing.

“The country continues to enjoy one of the best economic and policy environments among emerging markets,” it said in the report.

The IMF has projected Chile’s gross domestic product (GDP) to grow 4.0 percent this year and 3.4 percent in 2019.

Reporting by Dave Sherwood; Editing by Phil Berlowitz