Recent Economic Performance
Over the last quarter century the Chilean economy was radically transformed as government implemented key reforms based on freer trade, transparence, and fiscal responsibility. Open trading and investment rules as well as solid institutions have produced a widely successful model of economic growth. While economic performance remains a key priority, the legal, public health and education systems have also been overhauled and measures to increase income equality and reduce poverty have been adopted. For most Chileans, the effort has resulted in a significantly improved standard of living and fourfold per capita income growth over the past 20 years.
Double-digit inflation was first under control in the mid-1990s. The inflation rate has been in retreat ever since and is now edging closer to that of highly industrialized countries.
Year-End Inflation |
||||||||
1996 |
1997 |
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
6.6 |
6.0 |
4.7 |
2.3 |
4.5 |
2.6 |
2.8 |
1.1 |
2.4 |
| Source: National Statistics Institute (INE) | ||||||||
The stability of Chile’s economic fundamentals stems from a multiplicity of crucial reforms. Besting most emerging markets, the economy grew 3.4 percent in 2001 and 2.2 percent in 2002. Growth in 2003 and 2004 was a healthy 3.7 percent and an impressive 6.1 percent, respectively.
Leading Economic Indicators |
||||||
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
|
| Gross domestic product, current prices (USD Billions) | 72.9 |
75.2 |
68.4 |
67.3 |
72.0 |
93.6 |
| Gross domestic product based on purchasing-power-parity (PPP) valuation of country GDP (USD Billions) | 131.0 |
139.9 |
148.1 |
153.9 |
161.9 |
173.8 |
| Gross domestic product based on purchasing-power-parity (PPP) per capita GDP (USD) | 8,715 |
9,188 |
9,605 |
9,861 |
10,247 |
10,868 |
| Real GDP Percent Growth (CLP$ 1986) |
4.5 |
3.4 |
2.2 |
3.7 |
6.1 |
|
| Unemployment (%) | 9.7 |
9.2 |
9.2 |
9.0 |
8.5 |
9.0 |
| Source: Central Bank; International Monetary Fund | ||||||
INTERNATIONAL TRADE
Recognized the world over as Latin America’s free-trade pioneer, at present Chile has standing trade agreements with numerous nations and trading blocs. In addition to these commitments, for a number of years Chile has been systematically reducing trade tariffs. In January 2003 it lowered its uniform non-preferential tariff rate again, this time from 7 percent to 6 percent.
Over the past decade, open trading policies and strong growth have given Chilean businesses and consumers alike new access to a growing variety of imported items. Imports in 2004 alone were worth some US$22.9 billion FOB.
Chile : Key Macroeconomic Indicators |
||||||
|
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
Real GDP (% change) |
4.2 |
3.1 |
2.1 |
3.3 |
5.8 |
6.3 |
Consumer prices (% change) |
4.5 |
2.6 |
2.8 |
1.1 |
2.0 |
3.7 |
Exports (US$ billions) |
19.2 |
18.5 |
18.3 |
20.8 |
32.0 |
39.5 |
Imports (US$ billions) |
17.1 |
16.4 |
15.8 |
17.9 |
22.9 |
32.5 |
In the export trade, the true star of Chile's economic health, a number of emerging sectors are experiencing strong growth. Indeed, Chile now exports a wide range of agricultural, forestry, marine and industrial products while the service industry, notably tourism, telecommunications and banking, is also undergoing significant growth.
Foreign investors have enjoyed clear, consistent, and non-discriminatory rules under Chilean law for 30 years. Foreign direct investment is afforded national treatment and unrestricted access to all industries and parts of the country. This positive environment has encouraged a wide range of foreign enterprises to set up shop in Chile on a long-term basis. Chile regards foreign investment as a crucial catalyst for technology innovation and improved product and service quality.
Over the past 30 years, foreign firms have invested some US$52 billion in sectors such as mining (34.7 percent); services (21.8 percent); water, gas and electricity (17.9 percent); industrial (12.8 percent) and transport and communications (8.9 percent).
Foreign direct investment in Chile is led by the United States, Spain, Canada, and the UK, in that order.
International organizations evaluating countries for competitiveness, financial freedom, transparence and corruption have lauded Chile on its performance. Risk rating agencies have an equally positive outlook on the Chilean economy.
In 2004, the Institute for Management Development’s World Competitiveness Yearbook cited Chile’s pro-business image abroad as second-best among 60 other world economies.
In February 2005, Moody’s Investors Service upgraded its outlook for Chile from stable to positive. “Chile’s credit strengths are derived from credible policy management, solid financial institutions, comprehensive structural reforms and, more recently, an economic policy framework that has led to more stable growth and manageable current account deficits”, said Moody’s in a press release.
Standard and Poor’s also rates Chile’s financial system highly. In January 2004, S&P raised its long-term foreign-currency sovereign credit rating for Chile from A- to A. According to S&P, the upgrade reflected the prudent economic management that is modernizing Chile’s public institutions and strengthening its financial profile.
In March 2005, Fitch Ratings upgraded Chile’s long-term foreign-currency sovereign rating from A- to A.
| Agency | Foreign Currency | Outlook |
| Standard & Poors (January 2004) |
A | Positive |
| Moody's (February 2005) |
Positive | Positive |
| Fitch (March 2005) |
A | Stable |
Widely regarded as a secure investment, Chilean government bonds -unlike those of Latin American counterparts- trade in international markets at spreads resembling those enjoyed by US Treasury Bonds.
INVESTMENT OPTIONS
The Chilean regulatory framework, which includes a Foreign Investment Committee which reviews projects and provides comprehensive investor information, has clear, transparent rules designed to safeguard foreign assets. Most investors choose to use the Foreign Investment Statute enacted in 1974. This mechanism, also known as Decree-Law 600, provides certain guarantees under a binding agreement.
This agreement guarantees investors uniform exchange rates, sole ownership for an indeterminate length of time, immediate profit repatriation, and choice of tax options. As a further safeguard, amendments require mutual consent. From 1974 through 2004, the Foreign Investment Statute has helped crystallize investment projects worth a total of US$$58.6 billion or 78.6 percent of gross capital inflows.
Chapter 14, adopted in 1990, is an alternative mechanism which does not call for a binding agreement with Chile but requires investors to obtain Central Bank authorization for access to the currency exchange market. Profits may be repatriated immediately, but withdrawal of principal is subject to a one-year waiting period.
Foreign Investment Per Type of Mechanism (US$ Mn) |
|||
DL 600 |
Cápitulo 14 |
Total |
|
2000 |
3,039.0 |
1,930.6 |
4,969.6 |
2001 |
5,016.7 |
1,037.3 |
6,054.0 |
2002 |
3,381.5 |
1,654.1 |
5,035.6 |
2003 |
1,286.2 |
1,333.6 |
2,619.8 |
2004 |
5,004.2 |
2,143.9 |
7,148.1 |
| Source: Central Bank Investment Committee | |||
Chile has signed 52 bilateral investment agreements, 35 of which have taken effect. All are based on the principles of reciprocity and equal treatment, and provide for conflict settlement procedures and legal guarantees to foreign investors.
Bilateral Investment Agreements Signed by Chile |
|||||
| Americas | Europe | ||||
| Argentina | Effective | 27 Feb. 95 | Austria | Effective | 17 Nov. 00 |
| Bolivia | Effective | 21 Jul. 99 | Belgium | Effective | 5. Aug. 99 |
| Brazil | Not in effect | Croatia | Effective | 31 Jul. 96 | |
| Colombia | Not in effect | Czech Republic | Effective | 2 Dec. 96 | |
| Costa Rica | Effective | 8 Jul. 00 | Denmark | Effective | 30 Nov. 95 |
| Cuba | Effective | 30 Sep. 00 | Finland | Effective | 14 Jun. 96 |
| Ecuador | Effective | 21 Feb. 96 | France | Effective | 5 Dec. 94 |
| El Salvador | Effective | 18 Nov. 99 | Germany | Effective | 18 Jun. 99 |
| Dominican Republic | Not in effect | Greece | Not in effect | ||
| Guatemala | Effective | 10 Dec. 01 | Iceland | Not in effect | |
| Honduras | Effective | 10 Jan. 02 | Hungary | Not in effect | |
| Nicaragua | Effective | 10 Dec. 01 | Italy | Effective | 23 Jun. 95 |
| Panama | Effective | 21 Dec. 99 | Netherlands | Not in effect | |
| Paraguay | Effective | 16 Sep. 97 | Norway | Effective | 4 Nov. 94 |
| Peru | Effective | 11 Aug. 01 | Poland | Effective | 22 Sep. 00 |
| Uruguay | Effective | 22 Apr. 99 | Portugal | Effective | 24 Feb. 98 |
| Venezuela | Effective | 17 May 94 | Romania | Effective | 27 Aug. 97 |
| Asia, Middle East & Pacific Islands | Spain | Effective | 27 Apr. 94 | ||
| Australia | Effective | 18 Nov. 99 | Sweden | Effective | 13 Feb. 96 |
| China | Effective | 14 Oct. 95 | Switzerland | Effective | 22 Aug. 02 |
| Indonesia | Signed | 7 Apr. 99 | Turkey | Signed | 21 Aug. 98 |
| South Korea | Effective | 18 Nov. 99 | Ukraine | Effective | 29 Aug. 97 |
| Lebanon | Signed | 13 Oct. 99 | United Kingdom | Effective | 23 Jun. 97 |
| Malaysia | Effective | 4 Aug. 95 | Africa | ||
| New Zealand | Signed | 22 Jul. 99 | South Africa | Signed | 12 Nov. 98 |
| Philippines | Effective | 6 Nov. 97 | Egypt | Signed | 5 Aug. 99 |
| Vietnam | Signed | 16 Sep. 99 | Tunisia | Signed | 23 Oct. 98 |
| Agreements are effective following ratification by Congress and publication in the Official Gazette | |||||
| Source: Foreign Investment Committee | |||||
FOREIGN TRADE
An Export-Oriented Economy
The remarkable adaptability, vigor, skill and efficiency demonstrated by Chilean exporters are borne out by growth figures attesting to a major sector upsurge through the past two decades. Chile went from exporting 200 product types in 1975 to a grand total of 5,238 in 2004, with destination markets increasing from 50 to 171. In 2004, some 6,636 Chilean firms were selling to customers abroad.
Export Products, Destinations and Firms |
|||
Year |
Products |
Destinations |
Exporters |
1975 |
200 |
50 |
200 |
1987 |
1,400 |
120 |
3,666 |
1990 |
2,300 |
122 |
4,100 |
1995 |
3,647 |
157 |
5,817 |
2000 |
3,749 |
175 |
5,666 |
2001 |
3,749 |
173 |
6,009 |
2002 (*) |
5,160 |
158 |
6,118 |
2003 |
5,232 |
165 |
6,435 |
2004 |
5,238 |
171 |
6,636 |
| * Year the export product list was revised and expanded. This explains the difference between export product volumes before and after 2002. Source: ProChile |
|||
Chilean companies are also looking abroad for new technologies and management expertise. In industries such as telecommunications, the retail trade, beverages and food processing, international partners are contributing to the development of new products and services for both the domestic and export markets.
Market Diversification
Chile trades with all countries in the Americas, Europe, Asia, Africa and Oceania. Diversification is a crucial component of trade policy.
The Americas, long a preeminent destination, were overtaken by Asia in 2004. Exports to Asia stood at 35.9 percent of the total, with countries in the Hemisphere a close second with 35.1 percent.
Chilean Exports by World Region (US$ Mn) |
|||||
2000 |
2001 |
2002 |
2003 |
2004 |
|
| Americas | 7,231 |
7,490 |
7,306 |
7,798 |
10,854 |
| North | 4,049 |
4,314 |
4,655 |
4,801 |
6,648 |
| South | 2,934 |
4,314 |
4,655 |
6,463 |
3,520 |
| Central | 145 |
172 |
218 |
373 |
555 |
| Caribbean | 102 |
93 |
103 |
106 |
130 |
| Asia | 5,636 |
4,691 |
5,101 |
6,463 |
11,082 |
| East Asia | 4,901 |
4,182 |
4,423 |
5,717 |
9,816 |
| Southeast Asia | 308 |
205 |
221 |
294 |
570 |
| Middle East | 283 |
166 |
260 |
208 |
251 |
| Rest of Asia | 143 |
137 |
196 |
242 |
443 |
| Europe | 4,848 |
4,981 |
4,542 |
5,222 |
8,331 |
| Western Europe | 4,746 |
4,899 |
4,465 |
5,086 |
8,016 |
| Eastern Europe | 102 |
82 |
76 |
136 |
314 |
| Africa | 81 |
83 |
71 |
101 |
101 |
| Oceania | 64 |
57 |
75 |
128 |
120 |
| Other | 290 |
307 |
310 |
376 |
407 |
| Source: ProChile | |||||
Chilean Exports Compete in Some of the World’s Most Exacting Markets
Our 2004 destinations were led by the United States, Japan, China and South Korea. Year-on-year demand rose 31.7 percent in the US market, 65.2 percent in Japan, 75 percent in China and 77.9 percent in South Korea.
| Leading Trading Partners (US$ Mn) | |||||
| Country | 2000 |
2001 |
2002 |
2003 |
2004 |
| United States | 2,991 |
3,214 |
3,483 |
3,467 |
4,568 |
| Japan | 2,539 |
2,167 |
1,928 |
2,237 |
3,697 |
| China | 901 |
1,027 |
1,225 |
1,836 |
3,212 |
| South Korea | 809 |
578 |
714 |
1,014 |
1,804 |
| Netherlands | 446 |
544 |
534 |
770 |
1,654 |
| Brazil | 969 |
862 |
694 |
839 |
1,403 |
| Italy | 817 |
815 |
856 |
905 |
1,339 |
| Mexico | 814 |
832 |
909 |
920 |
1,303 |
| France | 631 |
318 |
631 |
733 |
1,287 |
| Taiwan | 592 |
361 |
530 |
582 |
957 |
| Germany | 459 |
536 |
422 |
592 |
901 |
| United Kingdom | 1,064 |
1,234 |
798 |
690 |
857 |
| Canada | 244 |
268 |
263 |
414 |
778 |
| Spain | 374 |
337 |
389 |
478 |
730 |
| Peru | 437 |
480 |
466 |
425 |
526 |
| Argentina | 636 |
556 |
233 |
323 |
447 |
| India | 124 |
118 |
180 |
222 |
426 |
| Belgium | 375 |
242 |
228 |
272 |
329 |
| Ecuador | 158 |
231 |
251 |
293 |
322 |
| Colombia | 233 |
243 |
275 |
284 |
309 |
Subtotal |
15,614 |
15,263 |
15,009 |
17,299 |
26,848 |
Other |
2,539 |
2,349 |
2,421 |
2,839 |
4,049 |
Total |
18,153 |
17,612 |
17,430 |
20,138 |
30,897 |
| Source: ProChile | |||||
An Important Exporter of High-Grade Products
Ten core products account for 68.8 percent of all exports. In 2004 these commanded some US$21.2 billion.
| Leading Exports (US$ Mn) |
|||
Share in 2004 |
Item |
2003 |
2004 |
1 |
Copper |
7,421.6 |
14,341.6 |
2 |
Salmon and trout |
1,012.4 |
1,251.3 |
3 |
Molybdenum concentrates |
301.6 |
1,213.5 |
4 |
Wood pulp |
881.9 |
1,211.5 |
5 |
Wine |
680.0 |
845.3 |
6 |
Lumber |
428.3 |
613.7 |
7 |
Grapes |
571.6 |
592.3 |
8 |
Methanol |
438.0 |
505.4 |
9 |
Fishmeal |
370.3 |
338.2 |
10 |
Fresh apples |
262.8 |
337.9 |
Subtotal |
12,368.5 |
21,250.8 |
|
Other exports |
7,769.4 |
9,645.8 |
|
Total |
20,137.9 |
30,896.6 |
|
| Source: ProChile | |||
TRADE AGREEMENTS
From the standpoint of an open economy such as Chile’s, an ideal trading environment has stable, predictable rules and places no unreasonable hurdles to trade and investment. Chilean trade policy is thus based on three key principles: First, promote freer trade by unilaterally lowering barriers to trade. To accomplish this, Chile systematically reduced its fixed tariff rate one percentage point a year through 2003, when it was pegged at 6 percent. Second, actively seek new trade accords with individual nations and trading blocs. Third, actively foster free trade in multilateral forums such as the World Trade Organization
Free Trade and Economic Cooperation Agreements To Which Chile is Party |
|||
Country or Bloc |
Type |
Signed |
Effective Date |
| Bolivia | Economic Cooperation Agreement No. 22 | 6 April 1993 | 7 July 1993 |
| Canada | Free Trade Agreement | 5 December 1996 | 5 July 1997 |
| Central America | Free Trade Agreement | 18 October 1999 | |
| Colombia | Economic Cooperation Agreement No. 24 | 6 December 1993 | 1 January 1994 |
| Costa Rica | Free Trade Agreement | 18 October 1999 | 14 February 2002 (Bilateral Protocol) |
| Cuba | Partial Agreement | 21 August 1998 (5) | Congressional Review Pending |
| Ecuador | Economic Cooperation Agreement No. 32 | 20 December 1994 | 1 January 1995 |
| EFTA (3) | Free Trade Agreement | 26 June 2003 | 1 December 2004 |
| El Salvador | 3 June 2002 (Bilateral Protocol) | ||
| European Union (1) | Economic Partnership Agreement | 18 November 2002 | 1 February 2003 (2) |
| Guatemala | Protocol to be finalized | ||
| Honduras | Protocol to be finalized | ||
| Mercosur (4) | Economic Cooperation Agreement No. 35 | 25 June 1996 | 1 October 1996 |
| Mexico | Free Trade Agreement | 17 April 1998 | 1 August 1999 |
| Nicaragua | Protocol to be finalized | ||
| Peru | Economic Cooperation Agreement No. 38 | 22 June 1998 | 1 July 1998 |
| South Korea | Free Trade Agreement | 15 February 2003 | 1 April 2004 |
| United States | Free Trade Agreement | 6 June 2003 | 1 January 2004 (2) |
| Venezuela | Economic Cooperation Agreement No. 23 | 2 April 1993 | 1 July 1993 |
| Source: Direcon
(1) European Union member countries include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Portugal, Spain, Sweden, The Netherlands and the United Kingdom. On May 1st 2004 Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia were admitted as new members.
|
|||
