Reuters: US Dollar Report: IMF upbeat on outlook for Chilean economy

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IMF upbeat on outlook for Chilean economy Sep 11th 2012, 13:57 WASHINGTON, Sept 11 | Tue Sep 11, 2012 9:57am EDT WASHINGTON, Sept 11 (Reuters) - Chile's "skillful" economic management has helped deliver robust growth and low unemployment, the IMF said on Tuesday, but it urged authorities to be ready to use monetary and exchange rate policies to guard against external economic threats. "Downside risks remain, stemming from global uncertainties and Chile's vulnerability to commodity price shocks," the International Monetary Fund said in a regular check-up on the health of the country's economy. As a result, the IMF recommended that Chile be prepared to respond robustly to offset any headwinds, and highlighted the support that monetary and foreign exchange policies could provide if the economy took a sudden hit. "The current neutral stance of monetary policy is appropriate but should remain responsive to changing economic conditions," IMF executive directors said. "Exchange rate flexibility ... remains an important buffer and first line of defense against volatile capital flows and terms of trade shocks." The Chilean economy grew strongly in the last two years, buoyed by "exceptionally dynamic" domestic demand that restored momentum after the global financial crisis and a strong earthquake that hit parts of the country in February 2010. Output expanded at 5.9 percent in 2011, according to IMF data, and is forecast to grow 4.7 percent in 2012, while the Fund sees unemployment declining to a historically low annual average rate of 6.6 percent this year. The IMF said productivity growth was essential to maintain Chile's strong growth and urged action to get more women into the labor force to help maintain economic performance. It also encouraged Chilean authorities to strengthen the budget to build up "fiscal buffers" and make up for new spending commitments by permanent increases in revenue. "In this context, the tax reform to finance education expenditure is welcome. Directors welcomed plans to create a Fiscal Council and broaden the expenditure forecasting framework to include health care and education spending," the IMF said. Link this Share this Digg this Email Reprints

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