Bloomberg News

Chilean President Dismisses Concern Economy Is Overheating

April 03, 2013

Chilean President Sebastian Pinera dismissed concern the economy is growing in an unsustainable fashion, one day after his finance minister said the government may take measures to avoid overheating.

“I am convinced that the Chilean economy is growing in a healthy, solid and sustainable way, and that it can continue to grow at this rhythm,” Pinera told reporters in Santiago today.

Gross domestic expanded 5.6 percent last year, exceeding analysts’ estimates in nine of the 12 months, as foreign investment in the mining industry helped fuel a boom in consumer spending. The accompanying surge in demand for imports pushed the current account deficit to 3.5 percent of GDP, the widest since 1998.

The deficit is being financed, “not by debt, but by foreign direct investment,” Pinera said. Moreover, “the majority of investment in Chile is financed by Chilean savings. Only a small part is financed with external savings.”

The central bank yesterday raised its growth forecast for this year to a range of 4.5 percent to 5.5 percent from 4.25 percent to 5.25 percent, while cutting its inflation estimate to 2.8 percent. Domestic demand growth needs to slow this year to avoid imbalances, the bank said.

Finance Minister Felipe Larrain later wrote on his Twitter account that the “central bank report confirms the good outlook for the Chilean economy in 2013. We will take the necessary safeguards to avoid overheating.”

Central bank President Rodrigo Vergara also stressed the need to remain vigilant to the threat of excessive growth.

“Today our message is that internal risks are becoming more relevant,” Vergara told a business forum today. “There’s a risk that this vigor will remain without converging gradually to more sustainable rates, widening the current account deficit and later producing pressures on inflation. That’s not something we see today, but it could happen later.”

To contact the reporter on this story: Philip Sanders in Santiago at psanders@bloomberg.net.

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net.


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