The new measures: can stop the Chilean economic slowdown?

The new measures: Is able to stop the slowdown in the Chilean economy? April 1st, 2009 The Chilean economy is slowing. Not really surprising as this was what was expected for the first quarter of 2009, not only for the Chilean economy but to the world economy. Concerned about the economic data, the government of Michelle Bachelet on Monday launched a new package: What can we expect of them? Under a stormy sky in Chile have not stopped raining negative data in the economy. Consumption weakens, exports plummet, production contracts and unemployment rises. A vicious circle from which the Chilean government is struggling to curb. Consumption continues to show signs of weakening. Actual sales in supermarkets have seen a decline of 1.2% during the month of February. Furthermore, real retail sales recorded a contraction of 3%. As announced by the Central Bank of Chile until mid-March exports continued to 45% below the level observed in 2008. In the first two months of 2009, the Chilean trade balance accumulated a fall of 72% over the same period in 2008.

Industrial production continues to fall sharply. The National Statistics Institute (INE) released the industrial production data for February, which posted a 11.5% yoy fall. This decline represents the largest decline in industrial production since 1990. Moreover, in the labor market, the rolling quarter December 2008 to February 2009, unemployment rose to 8.5% of the economically active population (PEA), affecting 619,000 workers (with a greater impact on women for which unemployment rises to 9.8% while for men is 7.7%). For analysts, the unemployment rate could reach double digits by year's end.

With red numbers where you want to look at the Chilean economy, the Bachelet government did not wait to see the effects of the economic stimulus plan announced some time ago and launched a new package with a clear objective: to promote credit for SMEs (SMEs) and households. Analyzing the 20 measures under the new economic stimulus plan shows that 9 of them are direct financial support to enterprises, while the other 11 have a managed object as they aim to improve and facilitate the procedures for small and medium enterprises. Among the new measures include the extension of up to three years, the deadline for tax debts rescheduled and the promotion of greater competition in the credit market. Estimates by the Chilean Finance Minister Andres Velasco: "In our estimation, this set of 20 measures could produce about U.S. $ 3,600 million more additional private loans?. Beyond the analysis can be performed on them, I must say that the new measures were well received by experts in the field. In a note signed by Magdalena Winter, Bernadette Aguirre and Fernando Road site in Chile, "Economics and Business?, Reproduced the view of José Ramón Valente, Econsult economist, who believed the measures:" Effective.

In the sense that they need to enter the penalty area to make things really happen. In that sense, I appreciate that the task is made in detail to see where credit is stalling to remove these obstacles. While not as easy to understand, they are super important, and that's positive. He also highlighted the same concern for the fact that the credit flow in the economy. Is it important?. Together with the economic stimulus plan released in January, measures to restore growth of the Chilean economy represents about 4.4% of GDP in Chile. Bachelet's government is not alone in this crusade to stimulate economic activity. The abrupt change in the international and local, has allowed the Central Bank of Chile to pursue a loose monetary policy by deep cuts in its benchmark interest rate. At its last meeting, the Committee on Monetary Policy Central Bank of Chile, cut its benchmark interest rate by 250 basis points to 2.25% leaving. The market does not rule out that it may settle at 1.5% by the end of June. There is an economic environment that would allow this to happen.

Is that the weakening of economic activity is occurring in a context of sharp deceleration in inflationary pressures. Proof of this, in February, the annual change in consumer price inflation rate fell to 5.5%, after having played in the month of October 2008 by 9.9% (the maximum annual since 1994). Market analysts have recently estimated that retail inflation would drop to 2.3% in December this year the same president of Central Bank of Chile, José De Gregorio, confirmed last week that the entity does not rule out further rate cuts in benchmark interest "rule and is not likely to keep rate cuts happening, but of pace, magnitude, will be much more in the tradition of our movement rates before what happened in the first quarter ? What can you expect from the new economic stimulus measures? While SMEs and household consumption are key to any economy, the context of economic slowdown that lives Chile suggests that the measures could make a significant impact on recovering domestic demand. Families are afraid of losing their jobs in a labor market increasingly hostile, while SMEs are often vulnerable to falling into crisis which, in most cases, prioritize the search to maintain a good level of liquidity and hence , relegate any investment project despite having access to necessary funding.

The stimulus for household consumption and investment demand for credit to SMEs, will take place once you start to improve the economic environment. That is why you can not expect that through this package will boost economic recovery in Chile, but they can help speed recovery begins as soon as this to gain momentum.