The big fear on the right is that the government is resigned to running a fiscal deficit for the foreseeable future. Rightwing politicians argue that the finance minister, Nicolás Eyzaguirre, and his team misjudged both the state of the Chilean economy and the world economy in making excessively optimistic forecasts for this year. What the political right and the business sector fear is that the government assumption of relentless 7% growth has locked the economy into an unsustainable level of public spending. What the right would like is to see public sending rising more slowly than GDP.
To be fair, Eyzaguirre is backing away from his officials' assertions that the economy will grow by at least 4% this year. He admitted that the economy has been affected by the slowdown in the US and China and that it would be affected by the virtual recession in Brazil. He said that the economy would grow this year by between 3% and 4%.
This is in line with what the central bank has been forecasting. Other independent economic forecasters, such as the economics faculty at the Universidad del Desarrollo, reckon that growth is more likely to be in the 3% to 3.3% range.
Eyzaguirre added that the better the US did, the more likely Chile was to get towards the top of this range. As there were few signs of the US economy picking up pace, growth in Chile was likely to be around 3.5% this year, he said.
Eyzaguirre's more sober view of the country's immediate economic prospects comes just as work is starting on the budget for 2004. The key variables are the rate of the potential growth in Chile and the likely price of copper over the next 10 years.
The prospects for the copper market are not that encouraging: copper exports to the US have been overtaken, for the first time, by salmon sales. In the first five months, salmon sales were worth US$215m, while copper exports came in at just US$165m.
Unemployment: The economy is doing better than it was, but unemployment is still high. In Santiago, the unemployment rate in June was 13.4%, down 0.2 of a point in a year. In job terms, this means that 60,000 new jobs have been created in the past year. There are still around 360,000 unemployed in the capital, according to figures from the Universidade de Chile.
The University reckons that average monthly incomes in the capital are US$735 per household for those in work.
Credit: The alarm bills are starting to ring at the central bank over the growth in consumer lending. In June, this was up by 12%. In the year to December 2002, consumer credit rose by 5%. Traditionally, the central bank starts to tighten monetary policy when consumer lending starts to rise faster than GDP growth. Demand for other sorts of bank credit is still sluggish.
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