Friday, March 03, 2006

Chile `s next government economic policy

The whole new economic team has been announced by the new elected President, and the analyses of the middle term economic orientation and expected results have begun. On this regards it is important to make a distinction between data and variables. Data is a behaviour which has been known in the past ,and there is no chances to change it crucially, while variables are the unpredictable random behaviour, which complicate the markets.-
Let first review the Data. To begin, it is the fiscal prudent approach to its countercyclical macroeconomic policy. The public budget structural surplus is a guarantee for keeping a stable economic growth trend, given the autonomous Central Bank. Also,external conditions are favourable enough to count on increasing demand for export, specially those one which Chilean exports are concentrated most.-
Another data may be found in the new business opportunities arising from retail domestic expansion, because of increasing consumption options specially the one based on commercial credit cards asides from an increasing income.
On the other hand ,the economic team even though is young and less experienced than the current one, have the proper both technical and professional credentials for the job. The official guidelines, favouring productive sectors such as small and medium business will keep the momentum for growth and employment. So, Markets should expect continuity, facilitating to take advantage from new business opportunities, specially in the retail and financial sectors.-
What about the variables ?.There is some needs to improve regulation in those not traditional sectors such as commercial credit cards, and mobile phones due to its important expansion in the latest years. The risk is that when the authority start to regulate, it is hard to control the temptation to go further on the regulatory process. Another variable is on the tax policy. The expected VAT(Value added Tax) reduction for the year 2007 , will not longer be possible because of higher public expenditures levels. Given the fact that the VAT has increased steadily since 1990,there is no assurance that some time in the future it may be increase to the twenties range.-
It seems to me that in the overall balance, it will prevail data over variables. How is it so?. First :It is a four year government, and there is no doubts on the economic fundamentals. Second, Women are traditionally prone to manage financial resources and opportunities properly. In Chile this is a cultural value, for years on the shadow of family realities. Third ,A woman a the first President of Chile will care a lot about her chances of leaving a good legacy for futures female colleagues .Some signals of it, are in the carefully driven designation process of the new team.

PD.I finished my vacations. I went to Montevideo ,Uruguay, and I strongly recommend to visit it. Thank to all those who make comments.

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