Chile Vows To Use All Tools To Avoid Recession

Banks have tightened credit conditions in recent months, forcing some companies to shelve or cancel investment projects.

Chile's government will use all tools at its disposal to avoid being dragged into recession by the global financial crisis, the country's deputy finance minister said in an interview published on Saturday.

The government unveiled a $4 billion fiscal stimulus package in early January aimed at boosting domestic demand, creating jobs and fending off the global turmoil, but some analysts are asking whether it will be enough.

The economy grew at a slower-than-expected 0.5 percent in December, the worst performance for that month in a decade amid global economic crisis, when industrial output, mining activity and supermarket sales all contracted sharply as the global crisis bit.

"The government will not let Chile enter recession," Deputy Finance Minister Maria Olivia Recart told daily newspaper El Mercurio. "We will use everything that we have, but we can't do it alone."

The central bank on Thursday slashed its benchmark interest rate 250 basis points to 4.75 percent -- the deepest cut since records began in 1995 and lowest level since March 2006 -- citing the unexpectedly severe global slowdown and easing domestic inflation.

Banks have tightened credit conditions in recent months, forcing some companies to shelve or cancel investment projects, and the government has called on them to make lending cheaper.

Analysts expect Chile's economic growth to flatten or even turn negative this year, after estimated growth of 3.4 percent in 2008. The official forecast is for an economic expansion of between 2.0 percent and 3.0 percent this year.

Some analysts say that if Chile were to measure gross domestic product in terms of changes against the prior month or prior quarter -- such as is done in the United States -- then it would technically be in recession. Chile measures quarterly economic growth compared to a year earlier.