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Monday, June 4 de 2018

The Minister of Finance announces the Autonomous Fiscal Council Bill

The authority also informed the composition of the Council that will continue operating under the current institutional framework, until the bill that enters Congress today is approved. The Council will be led by the renowned economist Klaus Schmidt-Hebbel.


The Minister of Finance, Felipe Larraín, announced today the main guidelines and objectives of the Bill that creates the new Autonomous Fiscal Council, which will replace the current Fiscal Advisory Council that was created through a decree (2013) during the first administration of President Sebastián Piñera.

Minister Larraín said: "This is a project that has broad support (...) In fact it was one of the first agreements of the Integral Development Board," while being accompanied by the former treasury officials and members of the Board of Integral Development, Alejandro Foxley and Manuel Marfán, in addition to the Undersecretary of Finance, Francisco Moreno, and the economists Klaus Schmidt-Hebbel and Andrea Tokman.

Minister Larraín explained that the new entity will be an organization that will have both political and operational autonomy.

On the first of these points, the initiative indicates that the President of the Republic will appoint the president of the Autonomous Fiscal Council - that will remain in office until the end of the presidential term - and the four remaining members will be appointed by the President of the Republic, after being ratified by the Senate, by two-thirds of its members in office.

Minister Larraín said that the four members that will require the approval of the Senate will have four year terms, and may be re-elected only once. Council members will be renewed in pairs every two years.

Regarding operational autonomy, the project proposes that the new council will have resources to commission studies that are relevant to its mandate. In addition, it may request the collaboration of different State bodies, and has the ability to call for the information it considers necessary to analyze situations falling within its sphere of competence.

In relation to the functions of the new institution, it will continue to evaluate and monitor the calculation of the cyclical adjustment of actual income made by the Budget Office. However, the body may also now make observations and propose methodological and / or procedural changes for the calculation of the Structural Balance to the Ministry of Finance, unlike the current council that only carries out studies at the request of the Minister of Finance.

Minister Larraín explained that the new Autonomous Fiscal Council may comment on possible deviations from the fulfillment of the structural balance targets and may propose mitigation measures. In addition, he said that it is a consultative body, therefore, its decisions are not binding, and that the CFA should operate autonomously but in a collegiate fashion.

During the announcement, the head of the Treasury highlighted that the current Fiscal Advisory Council has improved the transparency of tax information and contributed to the informed debate on public finances, advising the finance ministers and fulfilling an active public role. In addition, he recalled that the recommendations of the external advisory committee chaired by Vittorio Corbo and international organizations, such as the IMF and the OECD, have pointed to the need for Chile to further strengthen its fiscal institutions.

"This bill is the main innovation in fiscal institutions in more than a decade, since the project that established the Fiscal Responsibility Law was sent and approved in 2006. Therefore, this is a milestone”, said the minister.

For their part, former ministers Alejandro Foxley and Manuel Marfán supported the bill. "If this country has accumulated any asset in terms of economic policy, it has been to seek macroeconomic stability regardless of which government is handling public affairs. Each government can improve the application or the institutional framework, but the objective is to give security to everyone independent of the political color. It is what explains to some extent that we are on this occasion supporting the initiative of the Minister of Finance, because we believe that it is exactly in that line, "said Foxley.

In his case, Marfán indicated: "If one has aspirations to build the country that one wants, it is a necessary condition to have the short-term under control. When the short-term is out of control, the discussion about the future is over. And that control of the short-term is what macroeconomic equilibria seek and is a necessary condition to build the country that we all want."

Minister Larraín said that while the bill is not approved, the Fiscal Advisory Council will continue to operate with its current institutional framework and, depending on the timeframe for approval, it is possible that the Fiscal Council appointed today will operate as a counterpart in the budget process of the year 2019.

In addition to announcing the bill that creates the Autonomous Fiscal Council, the head of the Treasury informed the new members of the Fiscal Advisory Council, an instance that will be led by Klaus Schmidt-Hebbel and will be integrated by Andrea Tokman (vice president), Gonzalo Sanhueza, Aldo Lema and Jorge Rodríguez Cabello.

In the instance, Schmidt-Hebbel stressed that the initiative is in line with improvements in fiscal institutions around the world. "The role of autonomous fiscal councils has been very important after the crisis of 2008-2009, many developed countries and several in Latin America, including Peru, Colombia and others have already created them by law. Therefore, Chile is catching up with international best practices on fiscal institutions”, he said.

Meanwhile, Andrea Tokman, thanked her appointment and highlighted its importance in strengthening fiscal institutions. "It is a work of great importance, that requires significant dedication, and we hope it contributes to strengthen the fiscal institutions that is one of the issues that has been under discussion”, she said.

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