Chile signals tax hike in the face of greater ‘social pressures’

Chile’s government will need to increase revenues to cope with growing “social pressures,” according to one of the country’s top economic policymakers.

“In the future we believe that we will need more tax revenue”, said in an interview for Bloomberg TV the Minister of Finance, Rodrigo Cerda, 48, who will leave office shortly. He also said that he expects inflation to ease in the second half of the year.

Voracious demand has driven inflation to chili to its highest level since 2008 and has caused sharp hikes in interest rates.

“We expect that for the second half of this year we will see much lower inflation“, He said Sow.

The University of Chicago-trained economist is one of the main architects of the emergency stimulus measures that pushed gross domestic product growth to near a record 12% last year. Recently, he spearheaded a proposal that will improve pension payments.

“We hope to have a constitution that focuses on growth.” Cerda pointed out. “In that sense, international investment is quite important.”

In March, Cerda will cede his position to the former president of the Central Bank Mario Marcel when the elected president of Chile, Gabriel Boric, take office. Investors praised Marcel’s appointment, which was interpreted as a show of fiscal prudence, and financial markets are awaiting his replacement in the monetary authority.

The economic outlook for chili, which is one of the most prosperous nations in Latin America, is a much bleaker future. Both analysts and traders surveyed by the central bank estimate that inflation will exceed the 3% target in the next two years despite rising borrowing costs, while activity will slow sharply.

Political uncertainty is affecting investment decisions as chili advances in the drafting of a new Magna Carta. On Tuesday, a committee of the Constituent Assembly backed a proposal in the first instance that opens the door to the nationalization of mines.

Although the plan still has to overcome several obstacles before being included in a draft of the new constitution, its approval in the initial vote caused falls both in the peso and in the shares of some companies with operations in chilisuch as Albemarle Corp. and Anglo American Plc.