Less hile government spending to stem peso rise

Chile's public spending growth in 2011 will be much less than the 9 percent forecast for 2010, which should help stem a sharp appreciation of the local peso against the dollar, Finance Minister Felipe Larrain said in an interview published on Sunday.
The peso surged to seven-month highs, boosted by strong prices for top export copper and as an interest-rate cycle in tightening mode lures investment, prompting President Sebastian Pinera and Larrain to publicly voice alarm. Larrain told Chilean newspaper La Tercera that while he was worried about the peso's appreciation in recent weeks, there were factors the government could not control.
Larrain said the government had not considered the idea of taxing foreign capital to prevent further appreciation of the currency. "This government is sensitive to the fall of the dollar, but we don't control either the price of copper nor rates at the global level," said Larrain, after the peso this week hit 500 to the dollar, the highest in seven months. The peso broke through the psychological 500-per-dollar level on Wednesday.
"This is a global phenomenon, the dollar has weakened in the world," he added. He said the economy would grow at a faster pace than government spending during Pinera's government. On Thursday, Larrain warned investors that authorities could intervene to stem a sharp appreciation of the local peso and said he was co-ordinating closely with the central bank.
A continuing surge in the peso would make Chile's exports less competitive, which could put the brakes on the economy's recovery from a massive February earthquake and from the global financial crisis. Due to greater fiscal austerity in the 2011 budget - which is being finalised - Larrain said he expects spending "will be much less than the 9 percent projected for 2010." The finance minister estimated that in the second half of 2010, economic growth will be "more genuine", and not as driven by the financing of the reconstruction effort after the February earthquake.
"This year it is increasingly clear that we will expand about 5 percent, but in the second half and in 2011 the growth should be around 6 per cent," said Larrain.