Brazil & Southern Cone - September 2011 (ISSN 1741-4431)

The government sent the 2012 budget to congress on 27 September.

The budget calls for a 5% increase in real spending. The economy minister, Pablo Longueira, said that the increase was in line with the GDP growth the government expects for 2012. For 2011 the government expects GDP growth of about 6.5%.

Longueira argued that the budget was balanced and yet provided for increased spending on education, health and social security. He said that of the extra US$3bn that the GDP growth in 2012 (and 2011) would produce, US$750m were earmarked for education.

Longueira is confident that the economy cannot be derailed by the international financial turbulence caused by the renewed slowing down of the US economy and the crisis in the European banking system. He added that the government’s economic priorities were to maintain the rate of growth and to create better jobs.

In the latest quarter June to August, the unemployment rate rose slightly from 7.5% in the previous three months to 7.6%.

The central bank is less bullish than the government about growth. In its most recent report on the economy, published on 7 September, it clipped 0.25 of a percentage point off its forecast for GDP growth in 2011. It now expects GDP growth of between 6.25% and 6.75%, down from a range of between 6% and 7%.

For 2012, the central bank is forecasting a rate of between 4.25% and 5.25%.

On 21 September, the finance minister, Felipe Larraín, said that the government was penciling in GDP growth of 4.9% in 2012 based on an average copper price of US$3.02 per pound, up from an average price of US$2.59 forecast for 2011.

The assumption among local economists is that the central bank has changed its stance on interest rates and will not now longer push them up. And it may indeed start to cut rates in the final quarter of 2011. Interest rates currently stand at 5.25% while inflation for the 12 months to August stood at 3.1% .

• A power cut in central Chile on 27 September may cost power companies US$9m in fines, the energy minister, Rodrigo Álvarez said. Around 10m people were affected and some households were without power for three hours.