Chile finance minister Valdes sees economy rebounding

SANTIAGO (Reuters) - Chile’s economy is likely to gain significant momentum in coming months and register growth in the last quarter of 3 percent, propelled by a recovery in mining investment and improved trade within South America, the finance minister said on Wednesday.

Chile's Finance Minister Rodrigo Valdes attends an interview with Reuters in Santiago, Chile August 9, 2017. REUTERS/Carlos Vera

The worst was over for the rapid decline in investment that was sparked by a slide in the global price of copper, Chile’s biggest export, Finance Minister Rodrigo Valdes said in an interview in Santiago for the Reuters Latin America Investment Summit.

“In coming quarters the economy should gain plenty of momentum compared to the first half (of 2017),” he said. As well as mining investment stabilizing in tandem with the copper price, he said positive factors in trade were also contributing, especially as economies recovered in important partners Argentina and Brazil.

The copper price recovery should narrow the fiscal deficit this year from the previously forecast 3.1 percent, he said.

Chile’s economy is forecast to grow around 1.5 percent this year, similar to last year’s 1.6 percent, and a notably weaker performance than during the 2000s commodities boom.

Business leaders and the right-wing opposition have criticized the center-left government of President Michelle Bachelet for pushing through a program of tax-and-spend reforms since it took power in 2014, at a time when business confidence was already shaky.

But Valdes defended the government’s record, pointing out that other mining-heavy countries such as Peru, Canada and Australia had suffered sharper declines in investment.

“That said, reforms have collateral damage ... changing taxes has at least a short-term effect. The question is the size of that effect and if it’s worth the cost to obtain resources for other kinds of spending,” he said.

Chile remains one of Latin America’s most successful economies, and its debt is the region’s highest rated, although its recent economic woes led Standard & Poor’s to downgrade it last month for the first time since the 1990s.

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It would not be a surprise if the other ratings agencies followed suit, said Valdes, but added that Chile’s strict fiscal rules meant a downgrade spiral was unlikely.

Recovering its former AA- grade was possible but would require significant political effort, he said.

“The demand for spending continues to be very strong and anyone governing is going to be faced with it,” said Valdes.

A fast-growing middle-class in Chile is demanding better social provisions and opportunities in a country whose society - like other Latin American states - remains deeply unequal.

One demand that has gone to the top of Bachelet’s to-do list is pension reform, with a bill slated to enter Congress on Thursday.

Many Chileans are angry that the highly privatized system has left pensioners with low returns. The bill seeks to increase employer contributions and creates a new state-run fund.

Its success in this administration would depend on whether the president’s increasingly divided coalition - which runs from Communists to centrist Christian Democrats - could reach agreement, said Valdes.

“If after three days we start to say ‘it’s ok but I want this’ and someone else says ‘I want something different and I don’t like that’ that will be harder,” he said.

“If on the other hand ... some say this isn’t everything we wanted but it’s an important step, then we can make progress and do so rapidly.”

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Reporting by Rosalba O’Brien and Antonio de la Jara; Editing by Phil Berlowitz