Outlook On The Republic of Chile Revised To Positive; Ratings Affirmed

We believe that the Chilean economy is becoming more resilient in the face of adverse external shocks and natural disasters because many years of prudent economic management have given it greater capacity to use countercyclical measures to cushion the impact of such pressures.  As a result, we have revised our outlook on Chile to positive from stable.  In addition, we have affirmed the `A+/A-1` foreign-currency and `AA/A-1+` local-currency ratings on the republic.

We believe that the Chilean economy is becoming more resilient in the face of adverse external shocks and natural disasters because many years of prudent economic management have given it greater capacity to use countercyclical measures to cushion the impact of such pressures.  As a result, we have revised our outlook on Chile to positive from stable.  In addition, we have affirmed the `A+/A-1` foreign-currency and `AA/A-1+` local-currency ratings on the republic.

Standard & Poor`s Ratings Services said today that it revised its outlook on the Republic of Chile to positive from stable. Standard & Poor\\\\\\\'s also said that it affirmed its `A+/A-1` foreign-currency and `AA/A-1+` local-currency sovereign credit ratings on Chile. The transfer and convertibility assessment remains `AA`.

"We revised the outlook to positive because we believe that many years of prudent economic management--particularly through adverse external shocks and natural disasters--have helped the Chilean economy become more resilient and have given it greater capacity to use countercyclical measures to cushion the impact of such pressures," explained Standard & Poor`s credit analyst Joydeep Mukherji. "Chile\\\\\\\'s strong financial profile, growing economic stability, and good growth prospects support the positive outlook."

The ratings on Chile are supported by its responsive political system, transparent and accountable public institutions, impressive fiscal track record, and strong macroeconomic policy coordination. The rating is constrained by a lower level of development (as indicated by GDP per capita) and economic diversification than is common in the middle of the investment-grade range as well as some external vulnerabilities.
 
However, the combination of good export prospects, high levels of foreign direct investment (generally exceeding projected current account deficits), and continued investment abroad by Chilean pension funds will likely deepen Chile`s integration with the world economy while containing external vulnerabilities.
    
The positive outlook reflects the likelihood of an upgrade if microeconomic reforms--including steps to strengthen domestic capital markets--further improve the economic structure and enhance long-term growth prospects. Continued growth, along with prudent fiscal and monetary policy, would strengthen Chile\\\\\\\'s economic base and further reduce its vulnerability to commodity price cycles. The ratings will likely remain at their current levels if, in our view, Chile\\\\\\\'s long-term growth trajectory falters, possibly because of setbacks in its reform efforts. Policy slippage could lead to lower ratings.
 
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