President-elect of Chile gives investors a reality check

President-elect Gabriel Boric has warned that Chile’s consumer spending boom is unsustainable and government finances are under pressure, delivering a reality check in one of the world’s fastest-growing economies.

Growth must be driven by investment, while protecting the environment, Boric said Thursday at a business event in Santiago. Increasing government revenue through tax reform while offering investors legal guarantees will help make economic expansion more durable and resolve social ills, he said.

“Our current status quo then slows down economic development and deepens social unrest.” noted Boric. “If we do not advance with material solutions, we will not have solved the causes of the social outbreak”.

Chile’s economy grew about 12% last year, a record for the South American nation, according to the central bank, which expects growth to slow to 2% this year.

Policymakers are likely to raise the benchmark rate again this month, extending hikes to a full 350 basis points since July amid above-target annual inflation.

Boric, a 35-year-old former student leader, will take office in March after promising greater equality in a nation that is one of the most prosperous in Latin America and a favorite in the global financial market. Investors are waiting for him to announce his cabinet within a week.

Boosting productivity and bringing back formal jobs, especially for women and youth, are top priorities, Boric said Thursday. The changes of the incoming Administration will be gradual and will be implemented with fiscal responsibility, he said, committing to reduce the structural deficit as of 2023.

The new government knows that alliances with the private sector will be key to boosting investments, according to the incoming head of state. Boric said that his team will always be open to dialogue with different segments of society.

His speech comes a day after the current Administration awarded controversial lithium contracts. The timing drew criticism from both opposition groups and Boric, who told the media on Wednesday that the decision resembles “those laws that bind you at the last minute when a government is about to end.