Cautious thumbs-up for Chile

The Chilean peso came under pressure last year

Chile's economy is holding up against the afflictions of its neighbours but will be weaker than originally hoped this year, according to the International Monetary Fund.

The IMF's annual report on the Chilean economy has forecast economic growth of 2.6% for the current year, lower than earlier expectations of 3%.

But the country was praised for its reaction to the crisis in surrounding countries such as the economic collapse in Argentina and Brazil's stock market falls.

The IMF, based in Washington, said Chile's medium-term outlook remained favourable but that its economic recovery could be hampered by the troubles surrounding it.

External factors

The Chilean peso came under increasing pressure in 2001, particularly from October, when neighbouring economies were in dire straits.

The IMF said the government had introduced policies that "helped the economy cope with severe external shocks, including developments in Argentina", and that inflation was on track to stay within the target band of 2-4%.

While unemployment, at about 9%, remained high in 2001, the IMF said the factors slowing Chile's growth were temporary.

Recommendations

But the fund cautioned that Chile's recovery could be held back by weak domestic demand and business confidence.

It recommended a number of initiatives to the Chilean government including being ready to increase interest rates if necessary.

The IMF also said the large increases in the minimum wage had limited job creation and that "it would be important to look for ways to support labour market flexibility."