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Fiscal
deficit in line with structural surplus rule
According to the government, the first half results are compatible with
accomplishing the 1% structural surplus rule. In 2000, the government
introduced this rule to underline its commitment to fiscal responsibility,
after having incurred the first fiscal deficit in ten years in 1999. The
structural balance excludes cyclical GDP effects and random movements in
the copper price. To achieve this, the rule calculates the amounts of
revenue and expenditure that would be forthcoming if the economy operated
at full potential and the price of copper were at the long-term price.
However, the structural balance as well as its main determinants of
potential output and the long-run copper price is not actually observable.
As such, there is no unique way to measure the structural fiscal balance
and different estimation techniques result in divergent balance estimates.
Initially potential GDP growth was set at 4.9% but was lowered to 4.1% for
the 2002-2007 period in September 2002, reflecting the diminished
long-term prospects for the Chilean economy. On 26 August, the government
announced new estimates (based on independent expert panels) of the
variables for the calculation of the structural surplus rule. Rather than
represent potential GDP as economic theory defines it, the new estimate
corresponds to the trend in GDP. According to the government, this
methodology is consistent with the structural surplus concept, since
“trend GDP” corresponds to a “normal” rate of utilization of productive
factors, and not to the maximum attainable level with complete use of
resources. Hence, for the 2004-2008 period the forecast for potential GDP
growth was set at 3.9%. The 4.3% Consensus figure for next year’s GDP
growth is well ahead of this estimate. The Consensus panel is also more
optimistic about the medium-term prospects, estimating an average growth
rate of 4.8% for the 2004-2008 period. The Government estimates the medium
term copper price at an average US$ 0.88 per pound for the 2004-2013
period, unchanged from last year.
For the rest of the year, the government expects that revenues coming from
tariff collection will remain low, with a small rise in copper revenues
amid higher prices partially compensating for the tariff revenue loss.
Expenditure growth will be limited by the recently announced US$ 300
million spending cut. In total, the government expects this year’s fiscal
deficit to be equivalent to 0.7% of GDP. Consensus Forecast panellists
confide in the government’s ability to keep its pledge and expect an
overshooting of only one tenth of a percentage point, i.e. a fiscal
deficit of 0.8% of GDP.
Current
account deteriorates in second quarter
In the second quarter, the current account balance incurred a deficit of
US$ 205 million, contrasting a US$ 270 million surplus registered in the
first quarter and also substantially below the US$ 23 million deficit
recorded in the second quarter 2002. The deterioration over last year’s
deficit was mainly attributable to a lower trade surplus. Even though
exports increased by 5.5%, in spite of a slacking global economy, imports
grew at almost twice the rate (+10.2% yoy), thus reducing the trade
surplus by US$ 144 million. The capital account balance also incurred a
deficit. While the US$ 317 million deficit is lower than the first quarter
shortfall of US$ 604 million, the capital account figure contrasts with
the 106 million surplus recorded in the second quarter last year. However,
the deterioration is only due to massive US$ 1.4 billon withdrawal of
portfolio investment in the second quarter compared to an inflow of US$ 83
million for the same period last year. Long-term direct investment flows,
on the other hand, more than tripled over last year’s US$ 284 million to
US$ 879 million in the second quarter this year. |
