Chile Plans Spend, May Issue Bonds

Chile plans to spend $4bn to boost its economy and may sell international debt for the first time since 2003 to help fund the stimulus. The sovereign plans to increase spending this year by about 1% of GDP and cut taxes by the same amount, it says, as well as inject $1bn into state-owned copper producer Codelco. To pay for the package, Chile would need to suspend fiscal guidelines introduced in 2000 that force governments to aim for a budget surplus, and is expected to temporarily cut the surplus target to 0.0% from 0.5% of GDP. The government expects the measures will allow the economy to grow 2%-3% this year. Finance minister Andres Velasco was quoted in local and wire reports Tuesday saying the government may offer both domestic and foreign bonds to help finance the plan. “The measures proposed by the authorities appear well focused and if properly executed could help bolster Chile’s economy against global recession, falling commodity prices and tighter external liquidity conditions,” says Casey Reckman, associate director at Fitch. “Although the government anticipates a deficit of 2.9% of GDP in 2009, Fitch does not expect Chile’s fiscal and external solvency indicators to deteriorate significantly as the stimulus plan will be financed primarily with resources from the $19.1bn economic and social stabilization fund,” she adds. President Bachelet says that the package, which is equivalent to 2.8 percentage points of GDP, aims to keep growth above 2.0%. Morgan Stanley forecasts growth of just 1.5% in 2009, while Merrill Lynch says it will expand by 2.3%.