UPDATE 2-IMF sees Chile's economy accelerating next year, welcomes reforms

(Adds IMF's comments on government's tax agenda)

SANTIAGO, July 22 (Reuters) - The International Monetary Fund on Tuesday projected Chile's economic growth will pick up pace in 2015 and broadly welcomed President Michelle Bachelet's ambitious tax and education reforms.

Gross domestic product in the world's top copper exporter is seen expanding by 3.2 percent this year and 4.1 percent in 2015, the IMF said in a report. Chile's economy grew by 4.1 percent last year.

"Growth is expected to bottom out in 2014 and gradually return to trend. Growth will reach 3.2 percent in 2014 and recover to its potential level by 2016, supported by monetary easing, the peso depreciation, and recovery in the global economy," the IMF said.

Chile's central bank has cut its benchmark interest rate by 125 basis points since October in an attempt to stimulate the economy, as investment, particularly in the key mining sector, and consumption have cooled.

"The end of the copper price boom and the normalization of global monetary conditions pose challenges to the growth outlook," the IMF said, adding that "Chile, with its strong fundamentals and policy frameworks, including a floating exchange rate, is well-placed to cope with these challenges."


The IMF also drew attention to Chile's income inequality, the worst among the Organization for Economic Co-operation and Development's 34 member states. That inequality was reflected in unequal access to quality education, blocking social mobility, it said.

Bachelet, a center-left politician who took office in March, has vowed to address the problem. To that end, her government is pursuing tax changes aimed at funding an overhaul to the education system.

The government says the changes, which include a gradual increase in corporate taxes to 27 percent by 2017 from the current 20 percent, also will pay for improved healthcare and reduce the fiscal structural deficit to zero by 2018.

"Improving access to high-quality education will help improve both Chile's long-term growth prospects and reduce Chile's skewed income distribution. And eliminating the structural fiscal deficit will help preserve Chile's strong public finances and fiscal buffers," the IMF said.

It said the government's agenda "focuses on the right areas," but added that many details remained to be worked out and greater clarity is needed regarding how the new tax regime will be implemented to evaluate its potential impact on growth and investment.

Local business and opposition lawmakers have argued the tax changes could stem investment in an economy that is already stalling, especially hurting companies that have scant access to international credit markets.

The government has said it expects Congress to approve the tax reform this year.

(Reporting by Anthony Esposito; Editing by James Dalgleish, Phil Berlowitz and Paul Simao)