Chile's consistent economic policies reap rewards

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Chile's sound and consistent policy framework over the past two decades has helped entrench low inflation, sustain economic growth, and reduce poverty, the IMF said in its annual economic review. The "structural surplus rule"-a fiscal innovation that requires a cyclically adjusted government surplus of 1 percent of GDP-along with a highly regarded inflation targeting framework, increasing trade and financial integration, and a robust financial system have strengthened the economy's resilience to external shocks. As a result, with a favorable external environment, real GDP grew by 6.1 percent in 2004, the strongest rate in seven years. Despite steady employment growth, however, the unemployment rate is still relatively high, at about 8 percent of the labor force.

The IMF's Executive Board noted that a favorable global environment, continued strong mineral prices, the ongoing rebound in private investment, and pickup in domestic consumption will contribute to strong economic growth in 2005 and 2006. Risks to the outlook appear manageable, and the Board commended the authorities for their prompt action to mitigate the impact of disruptions due to cuts in natural gas supplies from the region, as well as for their spending restraint-despite higher...