R O D R I G O V A L D É S P U L I D O M I N I S T E R O F F I N A N C E O F C H I L E Chilean Economy: Sailing in a Volatile World London, September 7th 2015 University College of London
M I N I S T R Y O F F I N A N C E. G O V E R N M E N T O F C H I L E Outline 1. Overview 1. Macroeconomic Framework 2. Chilean Economic Adjustment 3. Challenges
1. Overview
M I N I S T R Y O F F I N A N C E. G O V E R N M E N T O F C H I L E CHILE AT A GLANCE 1990 2014 Total surface area 1 (sq. km) 756,626 Population (million people) 13.2 17.8 GDP (US$ billion) 32.6 258.2 GDP per capita PPP (US$) 5,847 22,971 GDP Growth 3.4% 1.9% GDP Growth forecast 2015-2.5% Poverty (% of population) 38.6 14.4 (1) Gini coefficiente 0.56 0.49 (1) (1) Data for 2013. Source: Central Bank, IMF, National Statistic Office and Ministry of Social Development.
Chile is a small and. 2015 GDP (US$ PPP) Source: Worldmapper.
. open economy (Export+Import)/GDP=55% Most Favored Nation Tariff, (%) Chile Source: UNCTAD Chile, effective tariff 0 10 20 30 40
Highly dependent on natural resources, and. Exports, 2013 (composition, %) Source: Atlas of Economic Complexity, Harvard.
vulnerable to external shocks GDP Growth and External Conditions (1) (annual % variation, % PIB) 20% 15% GDP growth External Conditions Index, detrended 10% 5% 0% -5% -10% -15% 1980 1984 1988 1992 1996 2000 2004 2008 2012 (1) External condition index measures the effects of term of trade and capital inflow shocks on the GDP. Source: Central Bank,IMF and Ministry of Finance.
Even though, Chile has managed to converge in the last years GDP per capita PPP, 1990 dollars (developed countries = 100) 120% % 100% 120% 100% 80% 80% 60% 60% 40% 40% 20% 0% ARG CHI BRA KOR 1950-59 1960-69 1970-79 1980-89 1990-99 2000-09 2010-14 20% 0% Source: IMF and Madison.
2. Macroeconomic Framework
Credible Central Bank Inflation (% y-o-y variation) 30 30 25 25 20 15 Inflation target 20 15 10 Headline inflation Inflation expectations 10 5 5 0 0-5 1991 1994 1997 2000 2003 2006 2009 2012 2015-5 Source: Central Bank.
Responsible Fiscal Policy Fiscal Balance (% GDP) Assets and Debt of Central Government, (% GDP) 10 8 6 4 Nominal Structural 20 18 16 14 12 Sovereign Funds Central Government Gross Debt 2 10 0 8-2 6-4 -6 2000 2002 2004 2006 2008 2010 2012 2014 4 2 0 2000 2002 2004 2006 2008 2010 2012 2014 Source: Ministry of Finance
3. Chilean Economic Adjustment
Copper price super cycle is ending 700 Real Copper price (cus$ per pound, 2014 ) 600 500 400 300 200 100 0 1870 1890 1910 1930 1950 1970 1990 2010 Source: Catholic University of Chile, Central Bank and LME.
Resources have to be reallocated!
Salter-Swan Model Chile 2003-2004: internal and external balance Non tradables CNT 0 =YNT 0 P=C CTnc 0 = YTnc 0 Tradables non copper
Salter-Swan Model Chile 2004-2008, copper boom Non tradables CNT 1 YNT 0 YTnc 0 CTnc 1 Tradables non copper
Salter-Swan Model Chile 2004-2008, copper boom Non tradables Tradables non copper
Salter-Swan Model Chile 2004-2008, copper boom Non tradables CNT 2 =YNT 2 YTnc 2 CTnc 2 Tradables non copper
Salter-Swan Model Chile 2013-2015, negative term of trade shock Non tradables YNT 3 CNT 3 YTnc 3 = CTnc 3 Tradables non copper
Salter-Swan Model Chile 2013-2015, negative term of trade shock Non tradables Tradables non copper
Salter-Swan Model Chile: medium term Non tradables CNT 0 =YNT 0 P=C CTnc 0 = YTnc 0 Tradables non copper
Fiscal Balance and Current Account Current Account and Copper Price (*) (% GDP, US$ per pound) 6 5 8 Fiscal Balance and Copper Price(*) (% GDP, US$ per pound) 5 4 4 6 4 4 2 3 2 3 0-2 2 0-2 2-4 1-4 1-6 0 2003 2005 2007 2009 2011 2013 2015(p) Current account Real copper price (right scale) -6 0 2003 2005 2007 2009 2011 2013 2015(p) Fiscal Balance Real copper price (right scale) (*) Nominal copper price deflacted by the industrial PPI of US (2014=100). (f) forecast Source: Central Bank of Chile and Budget Office of Chile 23
Tradable sector shrank over the years Tradable sector participation in total GDP (percentage) 2003 2014 24.8% 33.8% 66.2% 75.2% Tradable Non Tradable Tradables: Agriculture, Fishery, Mining and Manufactures; Non Tradables: Utilities, Services and Public Administration Source: Central Bank of Chile.
4. Challenges
Economic policies has to ease the reallocation Flexible exchange rate Credible and monetary policy Gradual adjustment of fiscal accounts
Economic policies has to ease the reallocation Support resources mobility Support private confidence
R O D R I G O V A L D É S P U L I D O M I N I S T E R O F F I N A N C E O F C H I L E Thanks London, September 7th 2015 University College of London