Why Chile?General Description

In a world of constant change, Chile is a beacon of economic and institutional stability. In international comparisons of competitiveness and economic freedom, Chile is at the forefront of Latin America, and despite its emerging status, ranks alongside the most developed economies in the world. It has one of the world’s most business-friendly environments and has attracted a number of well-known multinational and foreign investors with its open and competitive economy.

The reason for this superior performance is due to the success of its reforms and the strength of its institutions, which have allowed Chile to build a robust macroeconomic framework. Standard and Poor’s (one) year ago upgraded Chile’s credit rating to A+ from A, lauding the strength of its economy and saying its economy was “more resilient than ever". Moreover in March 2009, Moody's upgraded Chile's credit rating to A1 from A2 with positive outlook.

Chile has built its credentials on the rigorous application of countercyclical fiscal and monetary policies, backed by strong institutional and legal framework that enjoy broad political support. The government is committed to achieving and maintaining a structural fiscal balance that offsets cyclical fluctuations in economic activity and in prices for leading export, copper.

Chile’s structural surplus rule, implemented before the three-year commodities super-cycle that ended in mid-2008, allowed Chile to take advantage of those years of windfall copper profits to build its sovereign wealth funds better than any other country in the region. It used the revenues to build a Pension Reserve Fund (PRF) and an Economic and Social Stability Fund (ESSF) with a combined total of over US$22,7 billion as of December 2008. Including Treasury deposits, assets total is over US$25,5 billion. Through prudent revenue management and counter cyclical policies, Chilean government.

Chile’s economic framework includes an independent central bank, whose monetary policy is carried out based on inflation targets and a floating exchange rate. Chile’s banking system, based on sound regulatory framework, also helps to reduce domestic economic volatility, with Chilean banks continuing to grow in 2008 while maintaining asset quality and adequate capitalization levels in spite of the global financial crisis.

Chile’s economic reforms have focused on the key areas of the private pension system, free trade, and the liberalization of financial markets.

In the early 80s Chile became the first country in the world to phase out a strapped pay-as-you-go system and replace it with an individually funded private pension system run by competing, private fund managers. In 2008 significant reforms were passed, including:

The creation of a new and better system of government pension subsidies;
The inclusion of self-employed workers in the system;
Increased competition among the private pension fund managers.

These reforms have led to a substantial increase in aggregate savings and contributed to the further development of domestic capital markets.

Chile, one of the most open economies in the world, has signed more free trade agreements (FTAs) than any other nation. It had FTAs with more than 90% of its trade partners in 2008, including Australia, China, India, Japan, Mexico, the US, the EU and South Korea.

It has developed its trade integration with the world through:

Unilateral tariff reductions (currently a flat rate of 6% and an effective rate of about 1%);
Free trade agreements (FTAs); and
Multi-lateral agreements.

In addition to Chile’s success in international free trade and macroeconomic management, it has also made remarkable progress its reducing poverty: since 1990 it has slashed its poverty rate to 13% from over 40 percent in the early 90s. This dramatic improvement is the result of ambitious and effective social policies and economic growth that has averaged 5.5% since 1990.

Chile is wired, globally connected, and able to offer investors a low-cost business-friendly environment, a high quality of life, and a talented and educated work force.

Chile was ranked No. 1 in Latin America and 19th in the world in terms of e-readiness and investment attractiveness for the 2008 – 2012 period, according to the Business Environment Rankings published by the Economist Intelligence Unit.

The ranking was led by Canada, Singapore and Denmark, with Chile falling between Norway and France and ahead of Spain, Israel, South Korea, China and India.

From 2005 to 2008 Chile’s capital Santiago has been in the top three Latin American cities to do business along with Sao Paolo and Miami in the yearly rankings of The Best Cities to do Business in Latin America, published by the business magazine AméricaEconomía. In May 2009 the Economist magazine put Chile at position 17 in the ranking that measured the environment for business in 82 countries. Chile appears in the position 15, ahead of France (17) and Spain (23), and as a leader in Latin America.

Chile’s advanced communications systems, logistics, and world-class air and sea ports have helped connect it to world markets and bridge distances with other global business centers.

Its economic development and global integration have also been supported by its strong financial services sector. Many of Chile’s finance executives have received graduate degrees from leading international business schools, including those in the United States and Europe.

However, high-quality advanced education is also available in Chile. Four of Latin America’s top 10 business schools, according to AméricaEconomía, are in Chile.

Chile is an extremely competitive location for foreign investors to do business, with low costs, high-quality support services, effective investor protection measures and high standards of corporate governance.