| CHILE |
Economy:
Chile has a market-oriented economy characterized by a high level of foreign trade and a
reputation for strong financial institutions and sound policy that have given it the strongest
sovereign bond rating in South America. Exports account for more than one-fourth of GDP,
with commodities making up some three-quarters of total exports. Copper alone provides
one-third of government revenue. During the early 1990s, Chile's reputation as a role
model for economic reform was strengthened when the democratic government of Patricio
AYLWIN - which took over from the military in 1990 - deepened the economic reform
initiated by the military government. Since 1999, growth has averaged 4% per year. Chile
deepened its longstanding commitment to trade liberalization with the signing of a free
trade agreement with the US, which took effect on 1 January 2004. Chile claims to have
more bilateral or regional trade agreements than any other country. It has 57 such
agreements (not all of them full free trade agreements), including with the European
Union, Mercosur, China, India, South Korea, and Mexico. Over the past seven years,
foreign direct investment inflows have quadrupled to some $15 billion in 2010, but FDI had
dropped to about $7 billion in 2009 in the face of diminished investment throughout the
world. The Chilean government conducts a rule-based countercyclical fiscal policy,
accumulating surpluses in sovereign wealth funds during periods of high copper prices
and economic growth, and allowing deficit spending only during periods of low copper
prices and growth. As of September 2008, those sovereign wealth funds - kept mostly
outside the country and separate from Central Bank reserves - amounted to more than
$20 billion. Chile used $4 billion from this fund to finance a fiscal stimulus package to fend
off recession. In December 2009, the OECD invited Chile to become a full member, after a
two year period of compliance with organization mandates, and in May 2010 Chile signed
the OECD Convention, becoming the first South American country to join the OECD. The
economy started to show signs of a rebound in the fourth quarter of 2009, and GDP grew
more than 5% in 2010. Chile achieved this growth despite the magnitude 8.8 earthquake
that struck Chile in February 2010, which was one of the top ten strongest earthquakes on
record. The earthquake and subsequent tsunamis it generated caused considerable
damage near the epicenter, located about 70 miles from Concepcion - and about 200
miles southwest of Santiago. The Chilean Ministry of Finance estimates the total immediate
losses were close to 17% of GDP.
GDP (purchasing power parity):
$257.9 billion (2010 est.)
country comparison to the world: 46
$245 billion (2009 est.)
$249.2 billion (2008 est.)
note: data are in 2010 US dollars
GDP (official exchange rate):
$203.3 billion (2010 est.)
GDP - real growth rate:
5.3% (2010 est.)
country comparison to the world: 64
-1.7% (2009 est.)
3.7% (2008 est.)
GDP - per capita (PPP):
$15,400 (2010 est.)
country comparison to the world: 72
$14,800 (2009 est.)
$15,100 (2008 est.)
note: data are in 2010 US dollars
GDP - composition by sector:
agriculture: 5.6%
industry: 40.5%
services: 53.9% (2009 est.)
Exports - commodities:
copper, fruit, fish products, paper and pulp, chemicals, wine
Exports - partners:
China 16.46%, US 11.31%, Japan 9.06%, South Korea 6.49%, Brazil 4.64%, Mexico 4.09%
(2009)
Imports - commodities:
petroleum and petroleum products, chemicals, electrical and telecommunications
equipment, industrial machinery, vehicles, natural gas
Imports - partners:
US 21.77%, China 12.76%, Argentina 9.55%, Brazil 6.46%, South Korea 5.35% (2009)
Executive Summary extracted from IMF Report - Chile: Financial System
Stability Assessment (August 2011)
The Chilean economy has bounced back strongly following the global financial crisis
and a major earthquake. The financial system weathered the crisis well—the result of
overall strong balance sheets and profitability, a robust regulatory framework, and timely
action by the authorities to counter pressures on liquidity and the supply of credit during
the crisis. Looking ahead, strong growth and a favorable interest rate differential could
continue to attract capital inflows, raising the risk of credit and asset price bubbles.
Remaining vigilant in this area will require continued efforts to address information gaps,
notably through the construction of standardized indices for real estate prices and the
proposed consolidated credit registry.
The financial system is large, well diversified, and highly integrated into the global
financial system. It is the deepest in the region and compares well with its peers. A key
feature is its high degree of conglomeration. Interlinkages within the financial system
involve mainly asset managers and banks—the former investing in the latter the equivalent
of about a quarter of GDP. Interlinkages among banks are relatively low. Gross financial
savings of Chilean households are high (about 140 percent of GDP) and nearly half of
them are placed in pension funds. Gross liabilities of corporates are over one time GDP;
only a small fraction is owed to banks and a larger fraction to the rest of the world.
The financial system appears resilient overall but challenges remain:
Banks are well capitalized (in terms of both quantity and quality of capital) and
profitable, and significant core deposits substantially limits funding risks. Although
stress tests confirm that they can withstand severe macroeconomic shocks in terms of
solvency and liquidity, pockets of vulnerability remain among some small banks that
rely substantially on wholesale funding.
The solvency of insurance companies has improved since the 2004 FSAP—a result of
tighter retirement qualifications and crisis-induced losses in pension portfolio, both of
which have reduced early retirement. Price formation in the annuity industry has
improved significantly following the introduction of a transparent quotation system,
advisor qualification standards, and ceilings on brokers‘ commissions. However,
competitive pressures on profitability could again pose challenges going forward.
Pension funds’ risks are now better diversified, including internationally, and the
introduction of default portfolios that follow life cycle criteria has better aligned
investments with the long-term interests of pension fund contributors. Important steps
have been taken to improve efficiency and competition in the system. Looking ahead,
lower returns may require increases in contribution rates and the retirement age. The
high profits of pension fund administrators may come under scrutiny in that context. 6
Sectoral oversight of the financial system is robust but there is room for improvement
in some areas. Ongoing reforms to strengthen the supervisory framework should provide
an opportunity to enhance the independence and legal protection of regulators. In
banking, the priority is to complete the incorporation of Basel II and III capital standards. To
improve integrity in insurance markets, the relevance and quality of the actuarial
profession needs to be boosted. The authority of the securities regulator should be
augmented, especially with respect to enforcement powers and the ability to regulate all
investment advisors. Finally, there is a need to further enhance the framework for anti-
money laundering and combating the financing of terrorism (AML/CFT).
With a financial structure dominated by conglomerates, Chile has a critical need to
strengthen consolidated supervision. The lack of a comprehensive framework for the
consolidated oversight of financial conglomerates is an increasingly serious gap—although
firewalls help limit the build-up of intra-group exposures. The authorities have taken a
range of actions to strengthen conglomerates oversight and related-party exposures are
strictly limited. While there is some room for further improvement within the current legal
framework, major legal reforms are needed to provide regulators with the powers to
supervise conglomerate risks effectively.
At present, the prudential and business conduct regulatory playing field is not
sufficiently level. Asymmetries exist in licensing, suitability standards, disclosure, and
compliance requirements across institutions that offer similar asset management services
and investment advice. A more harmonized approach to custody, clearing, and settlement
infrastructure could also improve efficiency and reduce systemic risk. The extent to which
the retailers‘ credit card operations should be brought more fully into the perimeter of
regulation requires careful consideration. More generally, the potential emergence of high
leverage outside the regulatory perimeter needs to be closely monitored.
The authorities are rightly focused on improving the regulatory architecture while
taking onboard a macroprudential function. A welcome step is the recent establishment of
a Financial Stability Committee to oversee system-wide risks but caution will be needed to
ensure that the Committee can discharge its functions effectively. In particular, the central
bank is an observer on the Committee and in that role it should be able to adequately
influence the Committee‘s deliberations, while preserving its autonomy. Moreover, in
normal times any institution-specific issues should be delegated to a sub-committee of
supervisors to avoid weakening regulatory independence.
The framework for crisis management and resolution would benefit from a number of
enhancements. In particular, there is room to improve the bank resolution framework.
Critical areas for reform include establishing powers to dilute existing shareholders before
liquidation, enhancing legal protection for regulators and interventors, and expanding the
range of resolution tools. The authorities see the need to review the bank resolution 7
framework and are conducting a crisis simulation exercise to determine areas of possible
improvement. In addition, although less urgent, the authorities will need to consider
establishing a framework for dealing with systemic cases, and for the potential failure of a
conglomerate. As the resolution framework is strengthened, consideration should be given
to establishing a premium-based limited deposit insurance scheme.
Click here to view full report
Banking
Chile’s banking system offers many of the asset and liability products available in
international markets. Foreign trade financing and money exchange operations are
particularly well developed and efficient compared to the rest of Latin America.
Chile’s Superintendence of Banks and Financial Institutions an agency under the Ministry
of Finance, regulates the financial sector. Chile’s Central Bank, which is autonomous from
the government in conducting monetary policy and regulating foreign capital movements,
also regulates bank operations.
Stock Exchange
The Santiago Stock Exchange (SSE) (Spanish: Bolsa de Comercio de Santiago), founded
on November 27, 1893, is Chile's dominant stock exchange.
About a decade ago the Chilean government implemented important reforms and
measures aimed at promoting savings in investment securities including the exemption
of capital gain tax on highly traded stocks of publicly traded companies, lowering taxes
for foreign investors on interest payments, and advancing the integration of Chilean
capital markets to the international financing market.
Chile has a market-oriented economy characterized by a high level of foreign trade and a
reputation for strong financial institutions and sound policy that have given it the strongest
sovereign bond rating in South America. Exports account for more than one-fourth of GDP,
with commodities making up some three-quarters of total exports. Copper alone provides
one-third of government revenue. During the early 1990s, Chile's reputation as a role
model for economic reform was strengthened when the democratic government of Patricio
AYLWIN - which took over from the military in 1990 - deepened the economic reform
initiated by the military government. Since 1999, growth has averaged 4% per year. Chile
deepened its longstanding commitment to trade liberalization with the signing of a free
trade agreement with the US, which took effect on 1 January 2004. Chile claims to have
more bilateral or regional trade agreements than any other country. It has 57 such
agreements (not all of them full free trade agreements), including with the European
Union, Mercosur, China, India, South Korea, and Mexico. Over the past seven years,
foreign direct investment inflows have quadrupled to some $15 billion in 2010, but FDI had
dropped to about $7 billion in 2009 in the face of diminished investment throughout the
world. The Chilean government conducts a rule-based countercyclical fiscal policy,
accumulating surpluses in sovereign wealth funds during periods of high copper prices
and economic growth, and allowing deficit spending only during periods of low copper
prices and growth. As of September 2008, those sovereign wealth funds - kept mostly
outside the country and separate from Central Bank reserves - amounted to more than
$20 billion. Chile used $4 billion from this fund to finance a fiscal stimulus package to fend
off recession. In December 2009, the OECD invited Chile to become a full member, after a
two year period of compliance with organization mandates, and in May 2010 Chile signed
the OECD Convention, becoming the first South American country to join the OECD. The
economy started to show signs of a rebound in the fourth quarter of 2009, and GDP grew
more than 5% in 2010. Chile achieved this growth despite the magnitude 8.8 earthquake
that struck Chile in February 2010, which was one of the top ten strongest earthquakes on
record. The earthquake and subsequent tsunamis it generated caused considerable
damage near the epicenter, located about 70 miles from Concepcion - and about 200
miles southwest of Santiago. The Chilean Ministry of Finance estimates the total immediate
losses were close to 17% of GDP.
GDP (purchasing power parity):
$257.9 billion (2010 est.)
country comparison to the world: 46
$245 billion (2009 est.)
$249.2 billion (2008 est.)
note: data are in 2010 US dollars
GDP (official exchange rate):
$203.3 billion (2010 est.)
GDP - real growth rate:
5.3% (2010 est.)
country comparison to the world: 64
-1.7% (2009 est.)
3.7% (2008 est.)
GDP - per capita (PPP):
$15,400 (2010 est.)
country comparison to the world: 72
$14,800 (2009 est.)
$15,100 (2008 est.)
note: data are in 2010 US dollars
GDP - composition by sector:
agriculture: 5.6%
industry: 40.5%
services: 53.9% (2009 est.)
Exports - commodities:
copper, fruit, fish products, paper and pulp, chemicals, wine
Exports - partners:
China 16.46%, US 11.31%, Japan 9.06%, South Korea 6.49%, Brazil 4.64%, Mexico 4.09%
(2009)
Imports - commodities:
petroleum and petroleum products, chemicals, electrical and telecommunications
equipment, industrial machinery, vehicles, natural gas
Imports - partners:
US 21.77%, China 12.76%, Argentina 9.55%, Brazil 6.46%, South Korea 5.35% (2009)
Executive Summary extracted from IMF Report - Chile: Financial System
Stability Assessment (August 2011)
The Chilean economy has bounced back strongly following the global financial crisis
and a major earthquake. The financial system weathered the crisis well—the result of
overall strong balance sheets and profitability, a robust regulatory framework, and timely
action by the authorities to counter pressures on liquidity and the supply of credit during
the crisis. Looking ahead, strong growth and a favorable interest rate differential could
continue to attract capital inflows, raising the risk of credit and asset price bubbles.
Remaining vigilant in this area will require continued efforts to address information gaps,
notably through the construction of standardized indices for real estate prices and the
proposed consolidated credit registry.
The financial system is large, well diversified, and highly integrated into the global
financial system. It is the deepest in the region and compares well with its peers. A key
feature is its high degree of conglomeration. Interlinkages within the financial system
involve mainly asset managers and banks—the former investing in the latter the equivalent
of about a quarter of GDP. Interlinkages among banks are relatively low. Gross financial
savings of Chilean households are high (about 140 percent of GDP) and nearly half of
them are placed in pension funds. Gross liabilities of corporates are over one time GDP;
only a small fraction is owed to banks and a larger fraction to the rest of the world.
The financial system appears resilient overall but challenges remain:
Banks are well capitalized (in terms of both quantity and quality of capital) and
profitable, and significant core deposits substantially limits funding risks. Although
stress tests confirm that they can withstand severe macroeconomic shocks in terms of
solvency and liquidity, pockets of vulnerability remain among some small banks that
rely substantially on wholesale funding.
The solvency of insurance companies has improved since the 2004 FSAP—a result of
tighter retirement qualifications and crisis-induced losses in pension portfolio, both of
which have reduced early retirement. Price formation in the annuity industry has
improved significantly following the introduction of a transparent quotation system,
advisor qualification standards, and ceilings on brokers‘ commissions. However,
competitive pressures on profitability could again pose challenges going forward.
Pension funds’ risks are now better diversified, including internationally, and the
introduction of default portfolios that follow life cycle criteria has better aligned
investments with the long-term interests of pension fund contributors. Important steps
have been taken to improve efficiency and competition in the system. Looking ahead,
lower returns may require increases in contribution rates and the retirement age. The
high profits of pension fund administrators may come under scrutiny in that context. 6
Sectoral oversight of the financial system is robust but there is room for improvement
in some areas. Ongoing reforms to strengthen the supervisory framework should provide
an opportunity to enhance the independence and legal protection of regulators. In
banking, the priority is to complete the incorporation of Basel II and III capital standards. To
improve integrity in insurance markets, the relevance and quality of the actuarial
profession needs to be boosted. The authority of the securities regulator should be
augmented, especially with respect to enforcement powers and the ability to regulate all
investment advisors. Finally, there is a need to further enhance the framework for anti-
money laundering and combating the financing of terrorism (AML/CFT).
With a financial structure dominated by conglomerates, Chile has a critical need to
strengthen consolidated supervision. The lack of a comprehensive framework for the
consolidated oversight of financial conglomerates is an increasingly serious gap—although
firewalls help limit the build-up of intra-group exposures. The authorities have taken a
range of actions to strengthen conglomerates oversight and related-party exposures are
strictly limited. While there is some room for further improvement within the current legal
framework, major legal reforms are needed to provide regulators with the powers to
supervise conglomerate risks effectively.
At present, the prudential and business conduct regulatory playing field is not
sufficiently level. Asymmetries exist in licensing, suitability standards, disclosure, and
compliance requirements across institutions that offer similar asset management services
and investment advice. A more harmonized approach to custody, clearing, and settlement
infrastructure could also improve efficiency and reduce systemic risk. The extent to which
the retailers‘ credit card operations should be brought more fully into the perimeter of
regulation requires careful consideration. More generally, the potential emergence of high
leverage outside the regulatory perimeter needs to be closely monitored.
The authorities are rightly focused on improving the regulatory architecture while
taking onboard a macroprudential function. A welcome step is the recent establishment of
a Financial Stability Committee to oversee system-wide risks but caution will be needed to
ensure that the Committee can discharge its functions effectively. In particular, the central
bank is an observer on the Committee and in that role it should be able to adequately
influence the Committee‘s deliberations, while preserving its autonomy. Moreover, in
normal times any institution-specific issues should be delegated to a sub-committee of
supervisors to avoid weakening regulatory independence.
The framework for crisis management and resolution would benefit from a number of
enhancements. In particular, there is room to improve the bank resolution framework.
Critical areas for reform include establishing powers to dilute existing shareholders before
liquidation, enhancing legal protection for regulators and interventors, and expanding the
range of resolution tools. The authorities see the need to review the bank resolution 7
framework and are conducting a crisis simulation exercise to determine areas of possible
improvement. In addition, although less urgent, the authorities will need to consider
establishing a framework for dealing with systemic cases, and for the potential failure of a
conglomerate. As the resolution framework is strengthened, consideration should be given
to establishing a premium-based limited deposit insurance scheme.
Click here to view full report
Banking
Chile’s banking system offers many of the asset and liability products available in
international markets. Foreign trade financing and money exchange operations are
particularly well developed and efficient compared to the rest of Latin America.
Chile’s Superintendence of Banks and Financial Institutions an agency under the Ministry
of Finance, regulates the financial sector. Chile’s Central Bank, which is autonomous from
the government in conducting monetary policy and regulating foreign capital movements,
also regulates bank operations.
Stock Exchange
The Santiago Stock Exchange (SSE) (Spanish: Bolsa de Comercio de Santiago), founded
on November 27, 1893, is Chile's dominant stock exchange.
About a decade ago the Chilean government implemented important reforms and
measures aimed at promoting savings in investment securities including the exemption
of capital gain tax on highly traded stocks of publicly traded companies, lowering taxes
for foreign investors on interest payments, and advancing the integration of Chilean
capital markets to the international financing market.
Background:
Prior to the coming of the Spanish in the 16th
century, northern Chile was under Inca rule
while Araucanian Indians (also known as
Mapuches) inhabited central and southern
Chile. Although Chile declared its independence
in 1810, decisive victory over the Spanish was
not achieved until 1818. In the War of the
Pacific (1879-83), Chile defeated Peru and
Bolivia and won its present northern regions. It
was not until the 1880s that the Araucanian
Indians were completely subjugated. A
three-year-old Marxist government of Salvador
ALLENDE was overthrown in 1973 by a military
coup led by Augusto PINOCHET, who ruled
until a freely elected president was installed in
1990. Sound economic policies, maintained
consistently since the 1980s, have contributed
to steady growth, reduced poverty rates by
over half, and have helped secure the country's
commitment to democratic and representative
government. Chile has increasingly assumed
regional and international leadership roles
befitting its status as a stable, democratic
nation.
Government type:
republic
Capital:
name: Santiago
time difference: UTC-4Independence:
18 September 1810 (from Spain)
National holiday:
Independence Day, 18 September (1810)
Constitution:
11 September 1980, effective 11 March 1981;
amended 1989, 1991, 1997, 1999, 2000, 2003,
and 2005
Legal system:
based on Code of 1857 derived from Spanish
law and subsequent codes influenced by
French and Austrian law; judicial review of
legislative acts in the Supreme Court; has not
accepted compulsory ICJ jurisdiction; note - in
June 2005, Chile completed overhaul of its
criminal justice system to a new, US-style
adversarial system
Suffrage:
18 years of age; universal and compulsory
Government:
Chief of state: President Sebastian PINERA
Echenique (since 11 March 2010); note - the
president is both the chief of state and head of
government
head of government: President Sebastian
PINERA Echenique (since 11 March 2010)
cabinet: Cabinet appointed by the president
elections: president elected by popular vote for
a single four-year term; election last held on 13
December 2009 with runoff election held on 17
January 2010 (next to be held in December
2013)
election results: Sebastian PINERA Echenique
elected president; percent of vote - Sebastian
PINERA Echenique 51.6%; Eduardo FREI 48.4%
For names of current Ministers, click here.
Disputes - international:
Chile and Peru rebuff Bolivia's reinvigorated
claim to restore the Atacama corridor, ceded to
Chile in 1884, but Chile has offered instead
unrestricted but not sovereign maritime access
through Chile to Bolivian gas and other
commodities; Chile rejects Peru's unilateral
legislation to change its latitudinal maritime
boundary with Chile to an equidistance line with
a southwestern axis favoring Peru, in October
2007, Peru took its maritime complaint with
Chile to the ICJ; territorial claim in Antarctica
(Chilean Antarctic Territory) partially overlaps
Argentine and British claims; the joint boundary
commission, established by Chile and Argentina
in 2001, has yet to map and demarcate the
delimited boundary in the inhospitable Andean
Southern Ice Field (Campo de Hielo Sur)
All the information on this page sourced from
the CIA World Factbook, the US Commercial
Service and relevant FATF M.E.R.
Prior to the coming of the Spanish in the 16th
century, northern Chile was under Inca rule
while Araucanian Indians (also known as
Mapuches) inhabited central and southern
Chile. Although Chile declared its independence
in 1810, decisive victory over the Spanish was
not achieved until 1818. In the War of the
Pacific (1879-83), Chile defeated Peru and
Bolivia and won its present northern regions. It
was not until the 1880s that the Araucanian
Indians were completely subjugated. A
three-year-old Marxist government of Salvador
ALLENDE was overthrown in 1973 by a military
coup led by Augusto PINOCHET, who ruled
until a freely elected president was installed in
1990. Sound economic policies, maintained
consistently since the 1980s, have contributed
to steady growth, reduced poverty rates by
over half, and have helped secure the country's
commitment to democratic and representative
government. Chile has increasingly assumed
regional and international leadership roles
befitting its status as a stable, democratic
nation.
Government type:
republic
Capital:
name: Santiago
time difference: UTC-4Independence:
18 September 1810 (from Spain)
National holiday:
Independence Day, 18 September (1810)
Constitution:
11 September 1980, effective 11 March 1981;
amended 1989, 1991, 1997, 1999, 2000, 2003,
and 2005
Legal system:
based on Code of 1857 derived from Spanish
law and subsequent codes influenced by
French and Austrian law; judicial review of
legislative acts in the Supreme Court; has not
accepted compulsory ICJ jurisdiction; note - in
June 2005, Chile completed overhaul of its
criminal justice system to a new, US-style
adversarial system
Suffrage:
18 years of age; universal and compulsory
Government:
Chief of state: President Sebastian PINERA
Echenique (since 11 March 2010); note - the
president is both the chief of state and head of
government
head of government: President Sebastian
PINERA Echenique (since 11 March 2010)
cabinet: Cabinet appointed by the president
elections: president elected by popular vote for
a single four-year term; election last held on 13
December 2009 with runoff election held on 17
January 2010 (next to be held in December
2013)
election results: Sebastian PINERA Echenique
elected president; percent of vote - Sebastian
PINERA Echenique 51.6%; Eduardo FREI 48.4%
For names of current Ministers, click here.
Disputes - international:
Chile and Peru rebuff Bolivia's reinvigorated
claim to restore the Atacama corridor, ceded to
Chile in 1884, but Chile has offered instead
unrestricted but not sovereign maritime access
through Chile to Bolivian gas and other
commodities; Chile rejects Peru's unilateral
legislation to change its latitudinal maritime
boundary with Chile to an equidistance line with
a southwestern axis favoring Peru, in October
2007, Peru took its maritime complaint with
Chile to the ICJ; territorial claim in Antarctica
(Chilean Antarctic Territory) partially overlaps
Argentine and British claims; the joint boundary
commission, established by Chile and Argentina
in 2001, has yet to map and demarcate the
delimited boundary in the inhospitable Andean
Southern Ice Field (Campo de Hielo Sur)
All the information on this page sourced from
the CIA World Factbook, the US Commercial
Service and relevant FATF M.E.R.
| KnowYourCountry |
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| Last Updated: 26 September 2011 |