Day 2 - Ministerio de Hacienda

What an absolutely wonderful first business day!  On a personal note, our day started with the excellent news that Professor Rarick was feeling better and would indeed be joining us here in Chile.  He will be meeting us here after our visits tomorrow. 

Our first visit of the day was to the Ministerio de Hacienda (Finance Ministry) where we were hosted by Sr. Igal Magendzo and Sra. Pamela Arreano.  Sr. Magendzo is the Macroeconomic Coordinator for the Ministerio and Sra. Arreano is a macroeconomic policy advisor for the Ministerio.  Sr. Magendso gave a wonderfl presentation which brought to life the reasons analysts refer to the "Chilean miracle" of economic stability.  In simple terms, the hilean government has a "Fiscal Rule" which states that they will spend only structural income (vs. actual revenues) and that any windfall income will be saved and allocated to the Pension Reserve Fund, the Central Bank capitalization, and the Economic and Social Stabilization Fund.  The Chilean government's income comes primarily from two places:  taxes (71%) and copper (29%).  The structural income mentioned above is a combination of a forcast of GDP and copper prices for the upcoming year.  As a result of "The Rule" Chile's social expenditure spending is countercyclical - that is they spend more during difficult times. 

Sr. Magendzo noted that Chile has gone from having a more volitile economy than average in the region to now having a more stable than average over the last three decades.  He also noted that Chile has the fourth highest average growth rate in GDP in the world over the last 30 years after only China, Malaysia, and Ireland.  In addition, Chile has the lowest risk premium of all Latin American Countries.

Regarding the current worldwide financial crisis, Sr. Magendzo noted that Chile has the most aggressive combination of fiscal spending in a recession and reduction of interest rates to stimulate spending. They are able to do this because of the surpluses they've achieved (currently $10 billion dollars down from approximately $36 billion dollars before the crisis).  Speaking to the stability of the economy, he noted that no other country has suffered a sharper drop in exports while at the same time having its GDP contract at the lowest rate. 

Finally, he noted that education is the number one priority of the Chilean government if they want to be able to continue to compete in the world economy.  He believes that future growth will come from  global services such as financial services and this will clearly require an educated workforce.