Global slowdown is major challenge to South American countries in 2013

Global slowdown is major challenge to South American countries in 2013

Chile is one of the most stable and prosperous countries in South America and has seen robust growth over the last decade, according to the International Monetary Fund. But like other countries in the region it is facing challenges due to a global slowdown and the fragile economic situation in some European countries.

‘Chile’s strong economic policy framework, including a fiscal rule, inflation targeting, and exchange rate flexibility has underpinned the economy’s resilience in the face of the global financial crisis and the devastating earthquake in February 2010. Growth momentum is expected to remain strong,’ said IMF managing director Christine Lagarde at the conclusion of her recent visit to the country.

‘Risks relate mainly to the uncertain global environment. Chile remains exposed to shifts in commodity prices and deterioration in global financial market sentiment, although its ample policy buffers would provide protection. On the upside, continued strong domestic demand can put upward pressure on inflation and lead to further widening of the current account deficit,’ she explained.

‘In the medium term Chile should aim at achieving higher productivity growth and diversifying the economy further with a view to sustaining high economic growth rates in the future. In this context, reforms to improve the quality of education and training, enhance labour market efficiency and boost investment in the energy sector will be critical,’ she added.

Quote from Gringos.com : “U.S.-based restaurant chain Denny’s is coming to Chile next year, following Tuesday’s agreement between the chain and the Musiet Group, a family-operated company that also owns domestic airline company PAL Airlines.”

Lagarde also visited Colombia and said that the country has posted a remarkable economic performance over the last decade. ‘A strong policy framework, anchored by an inflation targeting regime, a flexible exchange rate, and a medium term fiscal framework and skilful policy management helped increase resilience to adverse shocks and maintain strong growth and low inflation,’ she said, ‘The ongoing peace process could also help cement these gains and ensure more inclusive growth going forward,’ she pointed out, adding that Colombia also faces economic challenges.

‘In the short term, as with other countries in the region, Colombia remains vulnerable to a sharp worsening in the external environment. Nimble policies and a comfortable level of international reserves, combined with the IMF’s Flexible Credit Line arrangement, provide the country with buffers against such shocks,’ explained Lagarde.

‘Looking further ahead, it will be important to continue to diversify exports to contain the dependence on the volatile oil and mining sectors. Additionally, the authorities recognise the need to overcome the high rates of labour informality, inequality and structural unemployment. Their efforts to undertake a comprehensive tax reform, as well as their envisaged pension reform, represent welcome steps in addressing these issues,’ she added. Overall, she concluded that the outlook for Colombia is positive and promising.