I. Chile Overview

 

A. Country Data:

Country Name	Chile
Government System	Republic
Capital	Santiago
Administrative divisions	12 numbered regions, plus Santiago metropolitan region, regions are divided into provinces.
Population	16 million
Population Growth Rate	0.09%
Religion	Roman Catholic 89%, Protestant 11%, small Jewish population
Language	Spanish
Currency	Chilean Peso
Fiscal Year	Calendar Year

 

B. Domestic Economy:

GDP (2006)	US$ 112.0 billion
GDP Real Growth Rate, % - 2005	6.3%
GDP per capita - purchasing power parity	US$ 12,600
Inflation % (per annum)	2.1%
Unemployment %, end of period	8.3%
Trade Balance (2005)	US$8 billion
FX Rate (per annum average)	541.86(January 2007)
Interest Rate (% p.a. average)	6% (November 2006)*

 

C. Government: 

Executive branch	Chief of State	- President Michelle Bachelet Jeria,  - Vice President Miguel Insulza.
Legislative branch	Bicameral National Congress	- Federal Senate:  38 seats elected by popular vote; members serve eight-year terms - one-half elected every four years  Chamber of Deputies: 120 seats; members are elected by popular vote to serve four-year terms
Judicial branch	Supreme Court Constitutional Tribunal	Judges are appointed by the president and ratified by the Senate from lists of candidates provided by the court itself; the president of the Supreme Court is elected every three years by the 20-member court.

 * Note - the president is both the chief of state and head of government.

Sources:  CIA - The World Factbook

Santiago, Chile

 II. Economy Overview
           

After a decade of impressive growth rates, Chile experienced a moderate downturn in 1999, brought on by the global economic slowdown. The economy remained sluggish until 2003, when it began to show clear signs of recovery, achieving 3.3% real GDP growth. The Chilean economy finished 2004 with growth of 6.1%. Chile was on track to achieve real GDP growth of around 6% in 2005, mainly due to record-level copper prices.

Chile has pursued generally sound economic policies for nearly three decades. The 1973-90 military government sold many state-owned companies, and the three democratic governments since 1990 have continued privatization, though at a slower pace. The government's role in the economy is mostly limited to regulation, although the state continues to operate copper giant CODELCO and a few other enterprises. Chile is strongly committed to free trade and has welcomed large amounts of foreign investment. Chile has signed free trade agreements (FTAs) with several important economies, including an FTA with the United States, which was signed in 2003 and implemented in January 2004. Over the last several years, Chile has signed FTAs with the European Union, South Korea, New Zealand, Singapore, Brunei, and China. It reached a partial trade agreement with India in 2005 and began negotiations for full-fledged FTAs with India and Japan in 2006. High domestic savings and investment rates also helped propel Chile's economy to average growth rates of 8% during the 1990s. The privatized national pension system (AFP) has encouraged domestic investment and contributed to an estimated total domestic savings rate of approximately 21% of GDP. However, the AFP is not without its critics, who cite low coverage rates (only 55% of the working population is covered) with whole groups such as the self-employed outside the system. There has also been criticism of the inefficiency and high costs due to a lack of competition among pension funds. Critics cite loopholes in the use of pension savings through lump sum withdraws for the purchase of a second home or payment of university fees as fundamental weaknesses of the AFP.

Unemployment has hovered in the 8%-10% range in recent years, well above the 5%-6% average for the 1990s. Unemployment remained at 8.8% at the end of 2004 in spite of strong economic growth. Most international observers blame the high unemployment rate on Chile’s complicated and restrictive labor laws. Wages have risen faster than inflation as a result of higher productivity, boosting national living standards. The percentage of Chileans with incomes below the poverty line--defined as twice the cost of satisfying a person's minimal nutritional needs--fell from 46% in 1987 to around 18% by 2004.

Chile's independent Central Bank pursues a policy of maintaining inflation between 2% and 4%. Inflation has not exceeded 5% since 1998. Chile registered an inflation rate of 2.4% in 2004. In 2005, inflation reached an estimated 3.7%. Stronger than expected domestic demand coupled with higher worldwide energy prices led to most of the inflationary rise in 2005. The Chilean peso’s rapid appreciation against the U.S. dollar in 2004 and 2005 helped keep down inflation while at the same time the strengthening peso played a role in the stronger than expected domestic consumption. Most wage settlements and spending decisions are indexed, reducing inflation's volatility. Under the compulsory private pension system, most formal sector employees pay 10% of their salaries into privately managed funds.

Total foreign direct investment rose to $7.1 billion in 2004, up from $2.5 billion in 2003. Both foreign and domestic investment in Chile had declined during the country’s period of slower economic growth from 1999-2003, but both now appear to be recovering strongly. The Chilean Government committed in early 2002 to undertake a series of microeconomic reforms designed to create new incentives for private investment. The government also has encouraged the use of Chile as an "investment platform" for multinational corporations planning to operate in the region. Chile's welcoming attitude toward foreign direct investment is codified in the country's Foreign Investment Law, which gives foreign investors the same treatment as Chileans. Registration is simple and transparent, and foreign investors are guaranteed access to the official foreign exchange market to repatriate their profits and capital. The U.S.-Chile Free Trade Agreement offers a number of other investor protections.

III. Foreign Direct Investment *

            Chile is a significant host for foreign direct investment (FDI) in South America, especially given the relatively small size of its economy. The attraction of Chile to foreign investors lies not only in its resource abundance but also in its tradition of openness to foreign investment. Chilean policies towards inward investment generally conform to OECD standards, and the country has been a trailblazer within Latin America in terms of its early attempts to attract inward investment through an outward-looking strategy. Chilean firms, in particular privatized ones, are also becoming important regional investors.
The study reviews the policies adopted by the Government of Chile towards inward investment and commends the generally open environment in which foreign firms are allowed to operate in Chile. There remain, however, certain areas where foreign investors are placed at a disadvantage, notably concerning capital controls, which are highlighted in the report.

 

Sources: *CIA World Fact Book and OECD