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Chile pumps the brakes on public spending, splitting with other LATAM economies

Chile’s leftwing government is engineering one of the world's most dramatic reductions in public spending, pleasing investors who had been worried by President Gabriel Boric’s large-scale spending promises. In an interview with the FT’s Michael Stott, finance minister Mario Marcel laid out his plans for financial discipline as market sentiment has become increasingly sensitive to policy uncertainty and stable public finances take center stage.

Boric’s eight-month-old government arrived with promises for additional spending on pensions, health, and education. Instead, market uncertainty following the constitutional reform efforts has led to a 24% reduction in public spending and shelving of more ambitious reforms that “could not be continued because of weakness in the economy and a lack of state resources,” Marcel told the FT.

The current discipline reflects a broader shift toward traditional center-left fiscal prudence. The spending cuts also highlight how Chile’s traditionally technocratic leaders aim to steer the country out of the troubled waters other left-wing governments face. As Brazil, Colombia, and Argentina keep spending to deal with slowing growth, they risk exacerbating inflation and making their economies vulnerable to the impact of tightening global financial conditions.

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