Chile -- 2003 IMF Article IV Consultation Discussions, Preliminary Conclusions of the Staff Mission

July 2, 2003

Describes the preliminary findings of IMF staff at the conclusion of certain missions (official staff visits, in most cases to member countries). Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, and as part of other staff reviews of economic developments.

In June, an IMF staff mission visited Chile to hold the 2003 consultation discussions. The team met with the ministers of finance and economy, the president of the central bank, and other senior officials, as well as representatives of the private sector, trade unions, and academics.

Economic activity is recovering and growth should rise to 4½ percent in 2004. Chile's sound macroeconomic policy framework (floating exchange rate, inflation targeting, and a fiscal structural balance rule) and strong fundamentals have largely insulated the country from external shocks, and medium-term prospects remain favorable. Recent trade agreements should have a positive impact on economic activity over the next few years, both through better access of Chilean exports to foreign markets and the added incentives for foreign direct investment.

The mission strongly supported the authorities' macroeconomic policies and objectives. Regarding fiscal policy, the authorities have acquired high credibility in meeting fiscal targets consistent with the structural balance rule and, in this context, the mission supported the plan to increase reliance on the VAT and achieve further economies in expenditures in line with lower import tariffs. The staff welcomed ongoing improvements in coverage and timeliness of fiscal statistics that are enhancing transparency and the credibility of fiscal policy.

The mission considered that Chile's inflation targeting framework has successfully anchored inflationary expectations and increased the economy's resilience to external shocks while maintaining price stability. Inflation expectations remain well within the target band and, in the staff's view, the current monetary policy stance is appropriately balanced in light of the still-tentative recovery in Chile and in the global economy. The central bank has conveyed its readiness to adjust the monetary policy stance-in either direction-as necessary, to keep inflation inside the target band.

The staff was encouraged by the progress being made in moving ahead with modernization of the state, further improving transparency, and implementing capital market reforms, all of which have benefited from a growing consensus among the public and private sectors. The state modernization agenda, in particular, if fully implemented, should help to increase efficiency in the public sector and overall competitiveness. In addition, the mission strongly supported the government's pro-growth agenda and expected that its full implementation would help strengthen productivity.

The Article IV Consultation with Chile is tentatively scheduled to be discussed at the Board on August 18.


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