(Bloomberg) -- S&P Global Ratings welcomed Chile’s renewed focus on economic reforms, saying they were central to accelerating growth and keeping debt levels under control.
Chile’s growth has “Latin Americanized” over the last decade, slowing to levels of its regional peers, said Sebastian Briozzo, head of Latin America sovereigns at S&P. Now, it needs to find agreements across the political divide to push ahead with changes such as tax and pension reforms, he said, while warning that no specific bill on its own has the potential to change Chile’s rating.
“The most important factor is that there is consensus in the political class regarding economic reforms,” Briozzo said in an interview. “To continue increasing social spending with a growth rate of 2.5% will be difficult. This is why the microeconomic agenda is so important.”
The agency, which is set to review Chile’s sovereign rating next month, classifies the nation’s foreign currency debt as ‘A’, the highest in Latin America and above other countries at similar levels of wealth. Still, it revised the outlook on that rating to ‘negative’ from ‘stable’ on Oct. 19 last year, citing weaker political consensus to push forward new legislation.
The political process is showing some signs of starting to move again. Congress gave final approval on Wednesday to legislation that clamps down on tax evasion and is expected to boost government revenues by 1.5% of gross domestic product, or roughly $4.5 billion.
Finance Minister Mario Marcel has yet to present a second, broader tax bill after the original version was rejected last year.
Senators are also likely to deliver the text of a bill on pension reform to the lower house by January. Attempts to reform Chile’s pension system have been held up for a decade amid political feuding between the left and right.
Chile was swept by a wave of social unrest in late 2019 that led to more than two years of debate over a new constitution. In the end, two different rewrites of the magna carta were rejected by voters, leaving the country back where it started and politicians to pick up the economic agenda once again.
“Recovering strong fiscal and external buffers in Chile is key for the sovereign’s credit profile,” Briozzo said.
--With assistance from Sebastian Boyd and James Attwood.
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