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Chile coping well with global crisis, but faces challenges -- IMF

Sept. 10, 2009 at 12:03 PM   |   Comments

SANTIAGO, Chile, Sept. 10 (UPI) -- Chile has coped well with the global financial crisis despite threats posed to its economic stability by close links with global structures, the International Monetary Fund said in its latest report on this Latin American country.

The IMF assessment coincided with a public opinion poll conducted by the Santiago Times, cited by MercoPress, which set the approval rate for President Michelle Bachelet at 73 percent -- the highest for any Chilean president since her center-left Concertacion Party came to power in 1998. Bachelet won election in 2006 as Chile's first woman president.

The IMF report came at the end of this year's routine consultation with Chile.

"The Chilean economy has proved resilient in the face of the global financial crisis," the report said. "The sound policy framework, underpinned by an inflation target regime, a structural budget rule, and a flexible exchange rate, allowed the economy to enter the crisis with a fundamentally robust position."

The IMF said large fiscal savings accumulated in past years had been critical to preserving stability and covering Chile's financing needs. Imbalances in the financial and corporate sectors witnessed elsewhere have been absent from Chile, the IMF said.

The IMF said that Chile, being highly integrated in the global economy, was hit by the global crisis both on trade and financial fronts.

Real GDP growth slowed markedly in the fourth quarter of 2008 and contracted in the first quarter of 2009, the Fund report said.

Inflation eased as demand fell, forcing down food and energy prices, with the 12-month inflation rate falling from 9.9 percent in October 2008 to 2 percent by June 2009.

Weak demand and lower copper prices led to an external current account deficit of 2 percent of GDP in 2008. But shrinking imports benefited the current account, which is projected to have a surplus in 2009.

The IMF praised Chile for a "sizable, well-balanced and coordinated" policy response to the crisis. But it warned that the outlook remains "highly dependent on the external environment, in particular the speed of the global recovery and its impact on commodity prices."

A further deterioration of global conditions would impinge on the pace of Chile's recovery, the IMF warned.

Further praise for Chile comes from IMF executive directors, but they, too, warn that Chile's recovery and growth remain highly dependent on the uncertain pace of global recovery. They also want Chile to consider extending its regulatory supervision to non-bank institutions whose performance can affect the economy.

MercoPress said Bachelet's approval rate has remained the same since last June -- months before the economic crisis. Much of the support has to do with Bachelet's personal charisma and the way she handled the economic crisis, the Santiago Times poll showed.

At the same time, however, approval for Bachelet's Interior Minister Edmundo Perez Yoma dropped by 9 points, from 48 percent in July to 39 percent in August.

Those polled expressed disapproval of Perez Yoma's handling of the long-running native Mapuche campaign for autonomy and return of ancestral lands in the Araucanía region. Perez Yoma's standing also suffered during questioning by the House of Representatives over arms purchases made while he served as defense minister from 1994 to 1998 during the presidency of Eduardo Frei.

The seemingly intractable problem of the Mapuche rights issue and the threat posed by its looming presence on Chile's political landscape are a lingering headache for the popular president.

© 2009 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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