US$ 4 billion economic stimulus plan for Chile

It states: “The Chilean government unveiled an ambitious countercyclical fiscal strategy to stimulate employment and growth in 2009. The plan involves over US$4 billion, equivalent to 2.8% of GDP. The stimulus plan announced by President Michelle Bachelet aims at securing economic growth between 2 and 3% in 2009 and encouraging employment. The government estimates that the plan could create over 100 thousand jobs. The package involves direct support for low-income families, additional public investment in infrastructure, tax cuts and other incentives for private investment, enhanced access to financing by small and medium companies, additional funds for labor retraining and a new hiring incentive, among other initiatives. The changes will be contained in a bill to be sent to Congress this week, and in several administrative measures that do not require congressional approval.

The plan contemplates an increase in public sector outlays of 1% of GDP (US$1,485 million), so that the 2009 real increase in public expenditure will reach 10,7%. The fiscal spending increase has as a counterpart an increase in structural fiscal income (owing to the depreciation of the Chilean peso, which raises the value of fiscal income denominated in dollars) and a temporary reduction in 2009 of the structural fiscal surplus to 0% of GDP from 0.5%. The plan also involves a temporary reduction in tax revenues of US$1,455 million, or 1% of GDP in 2009. Because they are transitory, the tax reductions do not affect structural, long term, fiscal revenues. Additionally, the government will allocate resources to capitalize Codelco and to fund CORFO financing initiatives. These items do not constitute additional spending, but rather below-the-line acquisitions of financial assets.

This fiscal strategy will imply an effective fiscal deficit of 2.9% of GDP in 2009. The government reaffirmed its strict adherence to the structural fiscal balance approach, which has strengthened public finances and allowed for the application of a strongly counter-cyclical fiscal policy. The plan will be financed with resources from the Economic and Social Stabilization Fund and the issuance of bonds authorized by the 2009 Budget Law.”

read more: Chile – Ministry of Finance

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