The former president of the Central Bank has been in the news in recent weeks, especially since he stated that, although the major reform involves fiscal risks, "the biggest risk is doing nothing."
In a conversation with "Money Talks" from La Tercera, Vergara discussed the current economic situation in Chile. With an average Imacec (a measure of economic activity) of 0.3 for the first quarter and an increasing unemployment rate, Vergara admitted that there were expectations for the new government that were not met.
"The truth is, there were expectations that things would start to improve relatively quickly. Those expectations simply did not materialize."
Furthermore, he explained that the first-quarter results "cannot be attributed to the war," as its effects on the economy began to be felt towards the end of March.
Regarding the series of warnings issued by the Autonomous Fiscal Council (CFA) about the fiscal risks involved in the major reform, the former president of the Central Bank stated that while there are risks and it is the CFA's duty to warn about them, "these are risks that generally exist in any project."
"It's good that the discussion of fiscal risks is focused there, and that we seek measures or ways to mitigate them. Now, speaking of risks, there is a fiscal risk here, it's true, we have a high structural deficit. Personally, this may be heresy, but I prefer to take that risk than to continue growing at a slower pace," he declared.
The 2014 tax reform.
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The former president of the Central Bank has been making headlines in recent weeks, especially since he stated that while the mega-reform involves fiscal risks, "the biggest risk is doing nothing." In a conversation with "Money Talks" from La Tercera, Vergara discussed the current economic situation in Chile. With an average Imacec of 0.3 for the first quarter and an increasing unemployment rate, Vergara admitted that there were expectations for the new government that were not met. "The truth is that expectations were created that things would start to improve relatively quickly. Those expectations simply did not materialize." He also explained that the first-quarter results "cannot be attributed to the war," as its effects on the economy began to be felt towards the end of March. Regarding the series of warnings issued by the Autonomous Fiscal Council (CFA) about the fiscal risks involved in the mega-reform, the former president of the Central Bank stated that while there are risks and it is the CFA's duty to warn about them, "these are risks that generally exist in any project." "It is good that the discussion of fiscal risks is focused there, and that we seek measures or ways to mitigate them. Now, speaking of risks, there is a fiscal risk here, it is true, we have a high structural deficit. Personally, this may be heresy, but I prefer to take that risk than to continue growing less," he declared. On the corporate tax reduction: Regarding the corporate tax reduction, the economist specifically recalled the 2014 tax reform, when the tax was set at the current 27%. Regarding this, Vergara stated that he considered it "a very bad tax reform" and identified it as the moment when Chile became "completely out of sync" in terms of corporate tax. "I believe that many mistakes were made during the second government of President Bachelet, and I believe that those mistakes have cost us dearly for a long time. I believe that they are an important part of this economic stagnation that we have experienced. And one of those mistakes was what was done in terms of taxation." Possible levers for the Ministry of Finance: Regarding the discussion about the mega-reform that will take place in Congress, Rodrigo Vergara was asked about possible "levers" that the Minister of Finance could use to balance the political discussion. Regarding this, Vergara believes that although the Communist Party and the Broad Front, "which will oppose everything regardless of the levers that may be moved," he hopes that part of the Concertación "will join" the project. The main measure he considers movable is the subsidy for formal employment, as it represents a high fiscal cost and, in his opinion, there is not enough evidence of the impact that this measure will have to incentivize hiring. "It is being sold as a protection for employment, but I get the impression that the evidence is not very favorable and the cost is very high. Therefore, in terms of cost-effectiveness, this is a measure that could be in the debate for being eliminated or replaced." NEWSLETTER Pulso PM Monday to Friday, 12:30 PM The most relevant news in markets, companies, and business: timely information, context, and content to make better decisions. By subscribing, you accept the Terms and Conditions and the Privacy Policies of La Tercera.