Chile Finance Chief Sees 2% Growth Amid Reform Push This Year

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(Bloomberg) — Chile’s new conservative government expects the economy to grow slightly above 2% this year as it pushes pro-investment reforms and cuts spending amid the impact of the Iran war on fuel prices.

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Finance Minister Jorge Quiroz reiterated on Saturday the government’s 4% growth target, while acknowledging the country will have to endure some short-term pain.

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“This first year is not going to be easy,” he said in an interview in New York, where he has been meeting investors. “We are receiving a country in stagnation, with high unemployment.”

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President Jose Antonio Kast took office in March just as oil prices surged due to the war in Iran. He immediately raised domestic fuel prices by more than 50%, avoiding the subsidies many governments have offered to ease the impact of higher energy costs on inflation.

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“If we had a better fiscal position, perhaps I would have done differently,” Quiroz said, adding that he had to act to prevent the government’s broader program from being derailed. “We just couldn’t afford it.”

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Even before the rise in fuel prices, Chile’s economy had contracted on a yearly basis for three consecutive months through March. Unemployment reached 8.9% after rising more than expected over the same period.

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Still, Quiroz expects growth to be supported by higher copper prices, Chile’s main export, and reforms sent to Congress last month.

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Among more than 40 proposals in an omnibus bill, Kast’s government plans to cut the corporate tax rate to 23% from 27% for medium and large companies, and to about 20% for firms hiring unskilled workers through a subsidy. The package also seeks to scrap a capital gains tax on low-value stock sales and create a new investment framework providing greater legal and tax certainty for both local and foreign investors.

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Despite facing a divided Congress, Quiroz said he is confident the core elements of the bill will be approved by June. “I’m quite hopeful,” he said.

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Before becoming finance minister, Quiroz was a lesser-known figure within Chile’s tight-knit network of economists. He holds a PhD in economics from Duke University and specializes in microeconomics, having built a career advising companies and serving as a board member of the Santiago stock exchange. Quiroz, along with fellow consultant Tomas Bunster, was among the first key figures Kast recruited as he began assembling his economic team last year.

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Quiroz has said the economic program focuses on three main areas: deregulation, tax reduction, and fiscal adjustment. Kast and Quiroz are betting that lower taxes and less red tape will boost growth, increase revenue, and help balance the budget by the end of their four-year term.

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