What to expect from the Chilean economy in 2014?

After several years of very strong growth, the Chilean economy began slowing down last year and the country's central bank started to cut interest rates to stimulate growth.

To talk about this year's outlook for Chile's economy and monetary policy, BNamericas spoke to BBVA Chile's chief economist Jorge Selaive.

This is the second of a two-part interview.

BNamericas: You forecast that the Chilean economy will grow at around 4% this year, which is similar to what it is estimated to have grown in 2013. What do you consider to be the potential growth that Chile could aspire to?

Selaive: We estimate the Chilean economy's potential growth rate to be around 4.5-5%.

BNamericas: What kind of reforms are needed now in Chile to bring the growth rate closer to its potential?

Selaive: There are several reforms, but I believe that it's particularly important to make reforms to the country's financial and capital markets so that more foreign investors and capital can enter those markets. Today, the foreign capital that is coming to Chile is heavily concentrated in the mining sector.

It has been proven that the development of capital markets is closely linked with higher economic growth and I would even say that it can be a cause of stronger growth in an economy.

So ideally we would have more foreign investors in the fixed-income market, in the stock market, and in all the asset classes in our capital market.

BNamericas: What needs to be done to make this happen?

Selaive: We need to offer foreign investors greater clarity on a range of tax issues and we also need to continue to improve the country's institutional strength. These are so-called micro reforms, but they are important reforms and the congressional approval last year of the single funds act was very important - and a step in the right direction.

BNamericas: What kind of financial center can and should Chile aim at becoming in your opinion?

Selaive: Chile and our capital Santiago simply do not have the necessary conditions to aspire to become a so-called traditional financial center like New York, London or Hong Kong. So we should aim at becoming an offshore financial center. And to become such a center, the local authorities need to undertake the necessary tax and financial market reforms that would facilitate the entry of foreign investors and capital.

I would say that this is particularly important today when we know that the scenario in the coming years will be less benign in terms of capital flows to emerging markets.

BNamericas: Do you sense that the authorities in charge of moving ahead with these reforms are moving at the right pace?

Selaive: I think the different authorities that have the capacity to pull the trigger on this have not moved forward with the urgency that is needed for the deepening and development of our capital market. There have been some steps, but I believe we can advance at a faster pace and I also think it's necessary to advance faster.

I do think there is a consensus regarding the importance of this issue, but there is a lack of consensus regarding the urgency of doing this.

It's also important to remember that both labor and educational reforms are also necessary to develop a capital market, especially in terms of having the human capital and talent that a sophisticated capital market needs. These are all reforms that need to go hand in hand.