By Sebastian Boyd and Eduardo Thomson Feb. 10 (Bloomberg) — Felipe Larrain takes over as Chile’s finance minister next month, charged with speeding up a recovery from the deepest slump in a decade and creating 1 million jobs. Larrain, 51, will replace Andres Velasco on March 11 when the new government takes office, President-elect Sebastian Pinera announced yesterday. Larrain has said that he will reverse a slowdown in Chile’s annual growth rate, which he blames on declining productivity, and help Pinera fulfill his campaign promise to increase employment. Chile’s next finance minister will probably maintain the government’s “structural balance rule,” which requires saving excess revenue during boom years for use when the economy slows, said Alejandro Puente , an economist at Banco Bilbao Vizcaya Argentaria SA in Santiago. Velasco and President Michelle Bachelet tapped $4 billion of copper savings last year for tax cuts and extra spending to blunt the global economic crisis. “Larrain’s appointment is a sign of continuity,” Ricardo Hausmann , director of the Center for International Development at Harvard University, said in a telephone interview. Larrain ran the group that advised Pinera on macroeconomic policy during his campaign. Billionaire Pinera’s victory ended 20 years in power by the Concertacion coalition that was formed to fight Augusto Pinochet ’s dictatorship. Chile’s main equity index is little changed since Pinera’s Jan. 17 victory while the MSCI EM Latin America index slumped 9.9 percent. Chile’s peso has dropped 9.5 percent in the same period. The new cabinet — including Juan Andres Fontaine , chairman of the electronic stock exchange, as economy minister and Laurence Golborne , former chief executive of Cencosud SA , as mining minister — probably will be welcomed by investors, said Eric Conrads , a hedge fund manager at Armada Capital SA. ‘Positive Spin’ “This might put a positive spin on the market in the short term,” Conrads said by telephone. Armada is a Mexico City-based partnership with ING Investment Management, which manages $12 billion in emerging markets. Larrain said today that reviving economic growth is the administration’s main challenge. He said that creating 1 million jobs is feasible with growth of 6 percent a year. “This country needs to regain its capacity to grow,” he said in an interview. “Our goal is to double the growth rate .” Chile’s economy grew 3.9 percent in December from a year earlier, the second straight month of expansion since the economy started shrinking on an annual basis in October 2008. Rising copper prices helped widen the country’s trade surplus to $2.1 billion in January, the most in almost two years. “The incoming government really inherited a pretty solid framework,” said Win Thin , senior currency strategist at Brown Brothers Harriman & Co. in an interview from New York. “Policy has become ingrained in Chile. There’s an ingrained orthodoxy.” OECD Member Chile, the world’s biggest producer and exporter of copper, last month became the first South American country to join the Organization for Economic Cooperation and Development, a Paris- based group whose members include the U.S., Australia and Japan. Larrain co-authored the 1993 textbook “Macroeconomics in the Global Economy” with Columbia University economist Jeffrey Sachs and taught at Harvard’s John F. Kennedy School of Government, where Velasco was a tenured professor. Larrain’s corporate experience — he is a board member of forestry and energy holding business Santiago-based Antarchile SA and soccer club operator Cruzados SADP — means that he understands the impact of public policy on businesses better than his peers, said Gerardo Esquivel , a economics professor at the College of Mexico in Mexico City, who has co-written articles with Larrain. ‘Very Capable’ “His training and experience is very appropriate for such a complex post,” Esquivel said. “He’s a very capable economist with a broader vision than economists usually have.” In 2006 Larrain was one of a group of economists who called on Velasco to save less and spend more, pushing for faster growth at the cost of lower fiscal savings. Pinera’s government will stick with the current 2010 budget, drafted by Velasco, which Congress approved in November, Larrain said Jan. 12. Velasco left $500 million of spending flexibility and Pinera would need a new law to get access to any more. Larrain says he can meet the incoming government’s targets with the resources at hand, yet didn’t rule out raising taxes. “The government has done a lot to increase spending, but in the test of spending wisely and efficiently it has failed,” he said last month. “We aren’t looking for an increase in the tax burden, but if we cannot meet the financing program with the resources that come from a reduction of evasion, closing of loopholes and growth that will generate more revenues, then we are willing to consider increases in taxation.” Larrain has known Pinera since the president-elect taught him at university, he told La Nacion newspaper in an interview last year. Like Pinera, he said voted against Pinochet in the 1988 referendum that ended Chile’s 17-year military dictatorship. “Of course many of the people in our coalition supported the regime,” Larrain said in January. “That happened in the past and people can change.” To contact the reporter responsible on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net or Eduardo Thomson in Santiago at ethomson1@bloomberg.net
See more here:
Larrain Pledges to Double Chile’s Economic Growth as Next Finance Minister
