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The left-wing government in Chile is surprised by the lack of spending

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One of the world’s most dramatic post-Covid spending pressures is set to generate a larger-than-expected budget surplus for Chile’s leftist government this year, delighting investors who have been wary of costly campaign promises by radical President Gabriel Borek.

“We expect a surplus of 1.6 percent of GDP this year,” said Finance Minister Mario Marcel. “It is the first surplus in nine years. The current government has made an effort to discipline which means that our results this year will be better than expected.”

Marcel, a notoriously cautious technocrat in his previous position as governor of the country’s central bank, insists that the Borek administration will not repeat the economic mistakes made by leftist governments elsewhere in the region.

“Many times ambitious reforms have been put forward that have sparked a great deal of hope among the population, but they could not be sustained later due to the weak economy and lack of state resources,” Marcel told the Financial Times. “It’s not something we want to see ourselves exposed to.”

Chile’s wisdom comes as officials and economists fear that higher interest rates will put governments under financial strain. The volume of IMF loans outstanding is expected to reach a record level this year, while borrowing costs have risen in many emerging markets and some advanced economies, such as the United Kingdom.

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Analysts worry that after next year, Santiago will struggle to provide better public services without straining the budget.

“The biggest challenge is to implement a very ambitious social spending agenda in pensions, housing, education, and the care system without affecting the sustainability of economic growth and investment,” said Sebastian Rondo, Southern Cone Economist at Bank of America. “This is a huge challenge.”

Finance Minister Mario Marcel
Finance Minister Mario Marcel said Chile is taking a prudent stance to avoid the mistake made by others in passing reforms that raise people’s hopes but can no longer sustain them. © Cristobal Olivares / Bloomberg

However, the government believes that it can raise spending by using tax reform to increase revenue. Chile’s tax collection is among the lowest in the OECD at 19.3 percent of GDP in 2020. Marcel said the planned changes would gradually raise tax revenue by about four percentage points of GDP by 2026.

“In Chile, there is a very strong conviction in politics, particularly in the center-left, that if you don’t have proper public financing, you cannot make the reforms that you want to pass that are sustainable,” Marcel said.

Investors have also been upset by the controversy over Chile’s constitution, which began when the previous government agreed to protesters’ demands for a new document. Voters last month rejected a draft charter drawn up by an elected assembly dominated by the hard left, and debates continue over how to move forward.

Marcel remains confident that the revised charter will not lead to unrest. “What has become clear is that we are converging towards a more moderate constitutional position,” Marcel told the Financial Times in a separate conversation before the referendum on September 4.

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Borek’s government took office in March promising to spend more on health, education and pensions. But it had to rein in the budget significantly after the former conservative administration led by Sebastian Pinera launched a consumer spending boom with a lavish Covid support package of 14.1 percent of gross domestic product, according to International Monetary Fund figures. Early withdrawals from pensions increased spending.

Growth picked up, with the economy expanding 11.7 percent last year, but inflation also jumped, prompting the central bank to tighten monetary policy. Chile first started raising interest rates in July 2021 while Marcel was central bank governor, eight months before the US Federal Reserve.

Chile’s central bank raised interest rates to 10.75 percent in September, and Marcel said he expects “probably one increase before prices stabilize and we start to see more results on the inflation side”.

Analysts at Citi expect prices to rise 13.5 per cent this year and rates to peak at 12 per cent by December. They expect Chile’s growth to slow to 2 percent in 2022 and the economy to shrink by 0.5 percent next year.

“In one year we absorbed all the huge deficits we inherited last year,” Marcel told the Financial Times. “We are much more advanced in stabilizing our economy than other countries.”

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If you compare the 2021 deficit with the surplus we will have this year, that means [a fiscal adjustment of] Approximately 10 percentage points of GDP. “Public spending has been reduced by 24 percent in real terms.”

With public finances stabilizing, the government is now planning a modest 4.2 percent expansion in spending next year, according to a budget proposal last week. Most of the extra money will be used to fund a better state pension for some 2.3 million Chileans, with smaller amounts for infrastructure.

President Gabriel Borek delivers a speech on the launch of the Chilean Tourism Program
President Gabriel Borek took office in March promising to spend more on health, education and pensions © Cristobal Basaure Araya / SOPA / LightRocket / Getty Images

Marcel was confident that the country could reap greater benefits from its natural resources to achieve its spending goals and move its economy back to an environmentally sound foundation.

The South American country is the world’s largest copper producer and the second largest lithium producer. Marcel said that mining is “going through a major transformation from a so-called ‘dirty’ industry to a clean industry, using less water and more renewable energy. In our case this is reflected in the use of water and energy sources.”

He said the Borek administration wanted to direct some of the income from the lithium to develop the production and export of environmentally friendly hydrogen.

Chile’s northern desert and long coastline provide some of the most concentrated sources of solar and wind energy in the world. This opens up the possibility of using abundant renewable electricity to produce pollution-free hydrogen, a green fuel. Marcel said the government is working with the World Bank and the Inter-American Development Bank to find ways to finance the ports and pipelines needed to develop the fledgling industry.

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The rapid development will enable Santiago to pursue a sound fiscal policy, while introducing ambitious social spending plans.

“Chile has traditionally been valued as a country with strong institutions, good macroeconomic policy and an open economy,” he said. “We aspire to add to this being an eco-friendly, green economy.”


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UK regulator to investigate rising mobile phone and broadband prices

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The UK’s telecoms regulator has launched an investigation into whether telecoms companies were upfront with customers about price increases in a contract after complaints of a lack of transparency.

Ofcom will study whether mobile and broadband service providers made customers who signed a deal with the company between March 2021 and June 2022 sufficiently aware of changes to their pricing terms.

As inflation soared as the cost-of-living crisis intensified, telecom groups collapsed audit From the regulator and politicians about whether they acted enough to support struggling families and broke the rules of transparency. UK inflation hit a 41-year high of 11.1 percent in October.

Most operators chose to significantly increase their prices above the rate of inflation earlier this year, which boosted core revenue. For example, BT, Vodafone and EE raised their prices in line with the CPI, plus 3.9 percent.

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Ofcom He said he was concerned that such intra-contract price differences were not “sufficiently prominent or transparent” at the point of sale, as required by the regulator’s rules. If cases of non-compliance are identified, Ofcom may initiate an investigation into said operators.

said Lindsey Fossell, group director of regulator networks and communications.

Ofcom’s latest affordability report, published on Thursday, found that 32 per cent of households had problems paying for phone, broadband, pay TV or broadcast bills – more than double the level of April 2021.

It also found that 17 percent of households are currently cutting back on other spending, such as food and clothing, to afford telecom services — up from 4 percent in June 2021.

Dana Toback, chief executive of Hyperoptic, a broadband provider that chose not to raise its prices above inflation rates this year, said Ofcom’s investigation was “a huge step forward in preventing the consumer from harm caused by higher mid-price contracts”.

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This year’s Hyperoptic survey found that 60 percent of people were unaware that the price of their broadband would increase mid-decade.

“We work hard to make sure that the annual price increase is clearly defined and discussed at each registration or renewal,” said BT, which also owns EE, adding that the company also showed customers how price changes worked in the contract.

“We follow industry best practices, and will participate fully in the Ofcom programme,” she said.

Vodafone did not immediately respond to a request for comment.

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Georgieva of the International Monetary Fund to discuss the economy and Covid with Chinese authorities via Reuters

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© Reuters. International Monetary Fund Managing Director Kristalina Georgieva attends a press conference following a meeting at the Federal Chancellery in Berlin, Germany on November 29, 2022. REUTERS/Michel Tantosi

NEW YORK (Reuters) – International Monetary Fund Managing Director Kristalina Georgieva said on Thursday that she will travel to Beijing next week with heads of other international institutions to discuss China’s economic outlook and COVID-19 policies with the country’s leadership.

“This is the first time, and we hope we can sit down together and discuss the very pressing issues facing China and the world,” Georgieva told the upcoming Reuters conference.

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Dutch minister defends trade relations with China

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A senior Dutch minister has defended the country’s deepening trade ties with China and vowed not to overreact on high-tech exports as the Biden administration pushes its European partners to harden their stance on Beijing.

The Netherlands remains “very positive” about its relationship with China, Micky Adriansens, the economy minister, said, saying Dutch companies operating there are providing a boost to innovation and trade.

As the United States presses its partners to tighten controls on exports of high-end semiconductor equipment to China, it has insisted that the Netherlands and Europe “must have their own strategy.”

“We have to think about this through – what are the risks of doing business with China in terms of certain products and value chains,” she told the Financial Times. “In general, we in the Netherlands are very positive and always have good relations with China. We do a lot of business with China. There are a lot of Dutch companies operating.”

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China accounts for 11 percent of Dutch imports, second only to Germany, and about 5 percent of exports.

The minister said that the relationship “gives a real boost to innovation and trade which is fundamental for Europe. We must cherish that as well.”

The remarks appear to contradict those of US Secretary of State Antony Blinken this week, who said he has seen “growing rapprochement” between the US and its allies on China. Blinken’s comments follow the US decision in October to impose strict export controls aimed at slowing China’s development capacity and preventing it from obtaining advanced semiconductors that could be used for military purposes.

The Netherlands is home to ASML and ASM International, two world-leading manufacturers of chip equipment.

The United States is now trying to persuade the Netherlands and Japan, another big player in the global chip industry, to strike a three-way deal that would further limit China’s access to chip-making tools.

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US sanctions, which prevent companies from sending many US-made products to China, have already hurt Dutch industry. ASMI He said This week they will affect about 40 percent of sales to China, which accounts for 16 percent of the group’s revenue.

Adriaansens declined to comment on the possible time frame in the semiconductor talks, saying it’s “not a simple yes or no,” but a matter of examining many aspects of a very complex production process. “You have to be very clear about which aspect of the production process is the most important issue for China,” she said.

“The Netherlands and Europe should have their own strategy,” she said, when asked about the US talks. At the same time, they needed to be aware of the risks associated with “specific technologies”. She added, “You don’t want to overdo it, but on the other hand, you don’t want to open your doors where safety is the number one issue — it’s a balancing thing.”

She also warned that it may not be possible to prevent China from acquiring advanced technology. “The development cycle is going very fast in China. We must not be naive.”

Adriaansens said the US’s separate actions to provide massive green technology subsidies to local businesses are troubling The Hague.

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The European Union said that a large part of the $369 billion in tax breaks and tax support in the United States Inflation Reduction Act discriminatory and violates global trade rules, and is in talks with Washington.

“The law to reduce inflation has an impact on industry and the economy in the Netherlands and the EU as a whole,” said Adriaansens. Combined with lower energy prices, it would deter investors and hurt European business competitiveness.

The minister added that the West should have a level playing field and “the same set of rules”. I compared it to the upcoming World Cup match with the United States. “We would like to have the same goal size and the same lines on the field in both halves.”

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