Chile 2007 : A pragmatist approach to global integration Jacques de Larosière Advisor to the Chairman of BNP Paribas and Former Managing Director of the International Monetary Fund Latin American Economic Outlook Conference Vittorio Corbo President, Central Bank of Chile Paris 29 th January 2007

2 The Chilean EconomyI The Chinese ConnectionII ConclusionsIII

3 Chile is one of the few Latin-American countries converging with the US Source: OECD Development Centre, Based on Angus Madison, Historical Statistics. The World Economy, Paris, OECD, GDP per capita absolute termsGDP per capita relative to US Plebiscite in Chile, 1988

4 Chile has also been able to take advantage of globalization by opening up and attracting FDI Exports % GDP Fuente: UNCTAD and World Development Indicators, World Bank, Chile is one of the most successful countries in the region attracting FDI It has also become a champion exporter % GDP Foreign Direct Investment % GDP

5 One of the strongest motors of growth for Chile has been its dynamic financial system Source: Betancour, C. De Gregorio, J. Jara A. Improving the Banking System: The Chilean Experience. BIS Papers. No. 28, Financial Development in Chile Chiles financial system is one of the most dynamic in the region, but it still has to catch up with other emerging economies in some aspects In some aspects, e.g. stock market capitalization, Chile is doing even better than Korea Financial Strength Index based on Moodys index of financial system strength, based on a numerical scale assigned to weighted average bank ratings by country.

6 Pension reform in Chile has had a significant impact on growth rates and productivity Source: Vittorio Corbo, Klaus Schmidt-Hebbel. Efectos Macroeconómicos de la Reforma de Pensiones en Chile. Banco Central de Chile, Septiembre Based on data from Instituto Nacional de Estadística, Chile.

7 The Chilean EconomyI The Chinese ConnectionII ConclusionsIII

8 China has become a major trading partner for Latin America and for Chile in particular Source: Direcci ó n General de Relaciones Econ ó micas Internacionales de Chile, Latin American exports to China (share of total exports) Latin American Imports from China (share of total imports)

9 Chiles exports destinations have diversified Regional distribution of Chilean exports to the world in 2005 Country distribution of Chilean exports to Asia in 2005 Source: Direcci ó n General de Relaciones Econ ó micas Internacionales de Chile, 2006.

10 This is very good news and a wise strategic bet Source: OECD Development Centre, Agnus Madison database, and DIRECON, The Asian drivers % of World GDP Asia is a good bet for the future Other alliances with Asian economies are a bigger opportunity for Chile

11 Chile openness to trade and investment is remarkable, but export specialization is still high Source: OECD Development Centre, Based on: Intracen, Economist Intelligence Unit and Index of Economic Freedom (Wall Street Journal).

12 A potential pitfall is that Chiles exports to China are becoming more concentrated in mining Chile: exports to China, by sector Source: Direcci ó n General de Relaciones Econ ó micas Internacionales de Chile y Banco Central de Chile, Chile: exports to the world excluding China, by sector

13 The Chilean EconomyI The Chinese ConnectionII ConclusionsIII

14 Conclusion: Chile is looking towards Asia Economic Agreements Bolivia Colombia Ecuador Venezuela FTA Canada Association with Mercosur FTA Mexico Economic Agreement Peru FTA Central America 2002 Economic Association EU 2003 FTA USA EFTA South Korea 2005 FTA China Economic Association P Partial Scope Agreement India Current negotiations with India and Japan Study for an FTA with Thailand 2007 Western HemisphereAsia Source: Direcci ó n General de Relaciones Econ ó micas Internacionales de Chile, EFTA: European Free Trade Association: Iceland, Liechtenstein, Norway, Switzerland. Note: TheP-4 group are: Brunei Darussalam, Chile, New Zealand, Singapore.

15 Concluding Remarks Chile has made significant improvements to become a leading model for the region: Financial sector development. Pension Reform. Trade openness and international insertion. New trading partners, particularly Asia, have become increasingly important for Chile.

Chile 2007 : A pragmatist approach to global integration Jacques de Larosière Advisor to the Chairman of BNP Paribas and Former Managing Director of the International Monetary Fund Latin American Economic Outlook Conference Vittorio Corbo President, Central Bank of Chile Paris 29 th January 2007

17 ANNEX

18 The good news is that Chile need not fear competition with China on a global level Source: Blázquez, Rodríguez and Santiso, Chinese trade competition with Latin America Mexico Brazil Colombia Venezuela Chile Argentina Peru Costa Rica Chinese global trade competition Mexico Thailand Hungary USACzech R. Spain Poland Japan High specialisationCoefficient of specialisation Coefficient of conformity Note: Both CS and CC coefficients are indicators of trade competition, based on the export structure of each country. As coefficients approach to zero, competition between countries tends to be small, due to export complementarities. When coefficients increase, competition increases. Low specialisation

19 Source: C.HJ.Kwan, Nomura Institute of Capital Markets Research Source: Blázquez, Rodríguez and Santiso, Chinas demand for commodities: a bonanza or a threat? Asian countries competition * vs. Chinese exports to US, % Thailand Taiwan Indonesia Malaysia Philippines South Korea Singapore Japan Latin American countries competition* vs. Chinese main export products 0% 10% 20% 30% 40% 50% 60% México Brazil Colombia Argentina Peru Uruguay Chile Venezuela