Ministry of Finance evaluated using copper law and issue debt to greater fiscal constraints
Minister Alberto Arenas spoke before the Joint Committee on Budgets and said they are also exploring the sale of financial assets from the Treasury. This, after they correct the economic outlook for this year and lowered the growth projection to 3.4%.
A narrower fiscal scenario for this year presented yesterday the Finance Minister Alberto Arenas, in his presentation before the Joint Committee on Budgets.
The authority lowered the growth forecast of the economy in 2014 to 3.4% from 4.9% estimated by the previous administration in September 2013. Also cut the domestic demand forecast from 5.4% to 3 ,1% and the average value of U.S. $ 3.05 copper per pound, from $ 3.25 estimated in September last year. The projection rate, meanwhile, rose from $ 522 to $ 560.
“We have inherited a restrictive budget,” Arenas said. The GDP growth projection of Finance is slightly above the 3.2% estimated by the market, according to the latest expectations survey by the Central Bank in April. Even yesterday, during the exposure to the committee, Senator Andres Zaldivar (DC) noted that projections from the minister were “too optimistic” according to the slowdown scenario facing the economy.
Income and spending
Given the complex economic scenario presented by ministry of Finance, Arenas said he expects less tax revenue for this year for $ 2 billion, ie 3.6% less than in the budget.
He also said that there are three pressures of higher spending. Earthquake in northern zone and fire in Valparaiso, totaling U.S. $ 1,250 million, of which $ 450 million will be needed in 2014. To that is added the lower performance of 2013 that transferred to 2014, by about $ 440 million. And finally, he said he found a health deficit of $ 165 million.
The Ministry of Finance evaluates various options for financing the higher cash deficit resulting from these lower revenues and higher expenses. These are: use of accumulated fund of copper law, issue more debt and selling assets from the Treasury.
“The most likely and necessary is that there will be sales needs from financial asset, particularly the Treasury, as well as (…) the use of financial assets from the copper law”, he said.
He added that the ministry began performing reallocations and is analyzing all powers under the Finance Act, both financial assets and public debt.
Both options use Reserved Act resources as increasing debt issuance from U.S. $ 6,300 million authorized for this year require a bill passing through Congress. Not so the use of assets. Currently the IRS has $ 15,724,000 in the Fund for Economic and Social Stabilization Fund (FEES) and U.S. $ 4,715 million in other assets.
From the minister’s words it reveals that he is looking at all funding options, says Jorge Selaive, chief economist at BBVA. However, he considers that the best option is to issue home sovereign debt because there is appetite for Treasury bonds.
Arenas said that this decision will be reported in due course.
Source: El Mercurio
