World Economy

Chile Political Scandals Have ‘Contaminated’ Economy

Chile Political Scandals Have ‘Contaminated’ Economy
Chile Political Scandals Have ‘Contaminated’ Economy

Chile’s economy has not been immune to the slew of graft allegations plaguing the political and business elite which have undermined business and consumer confidence, Finance Minister Rodrigo Valdes said late on Sunday.

In recent months, politicians across the political spectrum have been accused of accepting illicit campaign contributions from major businesses, scandalizing Chileans, Reuters reported.

That, along with allegations that President Michelle Bachelet’s son used his political connections to help his wife gain preferential access to a $10 million loan and turn a quick profit on a real-estate deal, have helped drag consumer sentiment to its lowest level since Chile’s 2009 recession.

“Polls show that there was a significant deterioration (in sentiment) towards the end of the first quarter. And my unequivocal conclusion is that politics started contaminating the economy,” Valdes said on TV Chilevision’s Tolerancia Cero program. “We’ve started a vicious cycle,” he said.

  Disappointing Growth

The pace of Chile’s annual economic growth in April again came in below expectations, prompting the government to say it has “a lot of work to do” to drag the economy back from the five-year low it hit in 2014.

Economic activity rose 1.7% in April from the same month a year ago, shy of forecasts for a 2.2% rise, as greater added value in services was offset by a drop in wholesale activities, the central bank said.

The Monthly Economic Activity Index, known as IMACEC, encompasses about 90% of the economy tallied in gross domestic product figures. On a monthly seasonally adjusted basis, the data was more downbeat, with the IMACEC showing zero growth in April from March.

“We’re growing at a pace that is below what we expected,” said Finance Minister Rodrigo Valdes.

“This only confirms, considering other data this week, that we have a lot of work to do,” said Valdes, whose appointment last month was welcomed by the market.

Chile’s economy expanded 1.9 percent in 2014, its slowest since a 2009 recession, as consumer spending and investment cooled. Economic growth picked up its pace in the first quarter of 2015, expanding 2.4 percent versus a year earlier.

The central bank said on Wednesday it could take longer than anticipated to gradually start hiking its key interest rate , as economic growth has been weaker than previously forecast and inflation has been quicker to cool. It cut its view for 2015 economic growth to between 2.25 percent and 3.25 percent, from a prior forecast of 2.5 percent to 3.5 percent.

“The better-than-expected Q1 2015 real activity data were driven largely by the sizable increase in public spending and the sizeable decline in import demand, neither of which could lever growth up on a sustained basis,” said Goldman Sachs economist Tiago Severo.

“Still-depressed business and consumer sentiment limit the prospects for a rebound in private spending and the economy’s forward momentum,” Severo added.