Locking in growth

Macroeconomic and structural policy challenges

Thanks to its sound macroeconomic policy framework and strong institutions, Chile was well prepared to respond to the global economic recession of 2008-09 and to the natural disasters of February 2010. Consequently, economic growth rebounded quickly and indications are for continued strong growth in 2011 and 2012. The short-term focus is to rebalance fiscal and monetary policy, while the longer term challenge is to accelerate the catch-up toward higher living standards. • Economic activity after the global economic crisis and the natural disasters of February 2010 has been strong. If it remains so, the central bank should continue to raise the policy interest rate to keep inflation expectations well anchored. Similarly, under the same conditions, fiscal policy could make early progress towards the objective of reducing the structural budget deficit. • Chile was well prepared to face the global recession and the February natural disasters, thanks to the large financial buffers accumulated during the copper price boom. The stock of government financial assets is now reduced, and it should gradually be rebuilt to prepare for possible future contingencies. An additional fiscal rule (a floor on net government financial assets) could help to reach this goal. • Convergence toward OECD living standards has slowed over the past decade. Reforms to prepare workers for the skilled jobs of the future as well as further steps to foster business activity, especially innovative start-ups, would contribute to resuming a faster pace of long-term economic growth.

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