Yesterday’s News: Rumors and Reforms

Monetary Policy


The President of the Central Bank of Chile, Rodrigo Vergara, announced a possible relaxation of monetary policy in order to encourage economic growth, Reuters reported on Thursday. At a business forum, Vergara said, “in a scenario where inflationary pressures fall, some more monetary stimulus may be necessary.” Economists expect Chile to face such a scenario in 2017.

Data from the Central Bank show that inflation in Chile has been declining towards the Central Bank’s target of three percent recently and is forecasted to hit the target in 2017. In the International Monetary Fund’s World Economic Outlook, Chile’s gross domestic product is predicted to expand by only 1.7 percent in 2016 and 2.0 percent in 2017.

The Central Bank has maintained an interest rate of 3.5 percent since December 2015.

Fiscal Policy


President Pedro Pablo Kuczynski said in a speech reported by Reuters that he wants to expand the tax base through formalization. However, there is not a consensus that President Kuczynski’s reforms would be effective.

Oxfam in Peru agrees that expanding the formal economy is critical for Peru’s fiscal health, but disagrees with the administration. As El Comercio reports, Armando Mendoza of Oxfam in Peru argues that reforms need to have a substantial effect on revenue collection in the short- and medium-term, which is where the proposed reforms fall short: “It will be very difficult to achieve the fiscal deficit reduction goals in 2017-2018.”

The Economy and Finance Ministry argued in October that its reforms will grow the economy by 5 percent in the long run and reduce the budget deficit to 2.5 percent in 2017 from 3 percent in 2016.

Costa Rica

The Costa Rican Union of Private Sector Enterprise Chambers and Associations (Uccaep) expressed their concern with the current fiscal reforms in a letter sent to the president of the Legislative Assembly and reported by La Prensa Libre. Uccaep’s principle concerns were that several laws that would increases taxes were quickly moving through the legislature, while a bill to “establish limits and responsibilities on the use of public funds” has stalled.


La Prensa reports that the Nicaraguan government has ruled out the possibility of tax reforms in early 2017. The Institute for Strategic Studies and Public Policies (based in Managua) and the International Monetary Fund have argued that Nicaragua needs to enact tax reforms. Unlike other countries, the executive and legislative branches in Nicaragua are both controlled by the same party, the Frente Sandinista de Liberacion Nacional.

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