Chile Signals Tax Rise to Cope With Growing ‘Social Pressures’

(Bloomberg) -- Chile's government will need to raise revenue to cope with growing “social pressures,” according to one of the nation's top economic policy makers.

“In the future we think we will require more fiscal revenue,” Finance Minister Rodrigo Cerda, 48, who is leaving office shortly, said in a Bloomberg TV interview. He also said he expects inflation to slide in the second half of the year.

Voracious demand has pushed Chile's inflation to the highest since 2008 and set off aggressive interest rate hikes. 

“We expect that for the second semester of this year we are going to see much lower inflation,” Cerda said.

The University of Chicago-trained economist is a main architect of the emergency stimulus measures that propelled gross domestic product growth near a record 12% last year. Most recently, he spearheaded a proposal that will improve pension payouts. 

“We expect to have a constitution which will have a focus on growth,” Cerda said. “In that sense international investment is quite relevant.”

In March, Cerda will cede his position to former central bank head Mario Marcel when President-elect Gabriel Boric assumes office. Investors praised Marcel's nomination, which was read as a sign of fiscal prudence, and financial markets are awaiting his replacement at the monetary authority. 

The economic outlook for Chile, which is one of Latin America's most prosperous nations, is a lot grimmer going forward. Both analysts and traders surveyed by the central bank see inflation above the 3% target over the next two years despite borrowing cost hikes, while activity will slow sharply.

Political uncertainty is weighing on investment decisions as Chile advances in the drafting of a new charter. On Tuesday, a Constitutional Assembly committee backed a proposal in first instance that opens the door to nationalizing mines. 

While the plan still has to clear several hurdles before being included in a draft of the new constitution, its passage in the initial vote nevertheless prompted declines in both the peso and the shares of some companies with operations in Chile, including Albemarle Corp. and Anglo American Plc. 

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