Chile’s finance minister Mario Marcel has expressed confidence that an agreement could soon be reached on key parts of the country’s contentious tax reform before the entire revised package is presented to congress.

In an exclusive interview with LatinFinance, Marcel said income tax reform would be put before lawmakers by March, but that a bill on tax evasion “should be sooner” and would depend on “the pace of agreement on the fiscal pact,” negotiations over which he said are “going well.”

The fiscal pact refers to a series of measures to combat informality, tackle tax loopholes and boost productivity, put forth by the administration following the failure of its prior efforts.

Tax reform has been a thorn in the side of Chile’s government following congress’ shock torpedoing of its signature reform efforts in March this year. Passage of the full reform is seen as critical to the government’s ambitions.

“It is a centerpiece of President [Gabriel] Boric’s agenda, and a necessary condition for full implementation. After the proposal’s rejection in congress, the government has moved to broaden the needed political consensus,” said Martin Castellanos, Latin America chief economist at the Institute of International Finance (IIF), a Washington DC-based lobby group.

Marcel, who was speaking on the sidelines of the World Bank/IMF Annual meetings in Marrakech, Morocco, said that his ministry is targeting total public debt issuance of “at most” $19.5 billion in 2024, although the proportion of sustainable instruments in Chile’s overall funding mix is likely to rise. The government’s international funding ambitions are well “cushioned” from global economic turbulence, he said.  

COMPLEX ENVIRONMENT

The share of sustainable debt (including bonds linked to environmental and social factors) sits at just over 30% of the country’s total debt, although Chile aims to boost that number to 50% by 2026, according to a finance ministry advisor.

The overall funding strategy will not be jeopardized by difficult external conditions, Marcel said. Sound fiscal and monetary policy have helped Chile regain an economic balance in the post-Covid era and the country is well-positioned to weather a complex external environment in part thanks to its sound debt profile, the minister noted.

Chilean public debt stands at roughly 38% of GDP, far lower than in many other emerging market countries, Marcel said.

“Our debt structure is relatively long. The current average maturity is 11 years. So that helps us to cushion some of the effects that the current environment may create on funding costs,” he said.

Macrel pointed to heightened risk perception in global financial markets and in world oil markets, noting that measures had already been taken to minimize the downside risks of such volatility.

“Chile is a very open economy, so we need to be aware of these developments. But perhaps in contrast with other countries, we have a number of shock absorbers that help us to face this juncture,” he said. “We keep a floating exchange rate regime, so the exchange rate is one of the shock absorbers. We rebuilt some buffers as a result of fiscal consolidation last year. Similarly, we are moving towards being less dependent on imported fossil fuels.”

MONETARY POLICY

Castellano noted that Marcel “has helped stabilize the economy by engineering a significant fiscal adjustment amid quite tough political and economic conditions.”

“Rapid fiscal consolidation has contributed to balancing external accounts. It also helped the central bank to ease monetary policy more forcefully than most LatAm peers,” Castellano said.

Marcel, meanwhile, drew a sharp distinction in terms of the funding costs and access to capital for investment grade sovereigns as compared with their lower-rated counterparts in the region.  

“In Latin America, at this point, investment grade countries include Uruguay, Mexico, Chile and a couple more. And then most of the others are below investment grade. So we access different markets for funding,” Marcel said.

“It is important to make the distinction between countries that have investment grade compared to others that do not, because the access and the cost of funding is completely different,” he added.

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