1. NS4540 Winter Term 2016 Chile Economy
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2. Chile WEF I

3. Chile WEF II

4. Chile WEF III

5. Chile EF I

6. Chile EF II

7. Chile/Argentina Economic Freedom

8. Chile/Argentina Investment Freedom

9. Chile/Argentina Property Rights

10. Chile Overview

11. Overview
With a per capita income of US$ 14,139 (or US$ 22,564 at ppp) almost twice its level a decade earlier, Chile one of Latin America’s richest countries
By regional standards, Chile has
strong institutions,
sound macroeconomic policies, and
a good business environment
Chile scores better than OECD average on both the
East of Doing Business, and
The WEF Global Competitiveness Index
Since the end of 1999, a full-fledged inflation targeting regime has been in place and the country is fiscally prudent

12. Overview II Chile’s economy is very open and diversified
Chile’s financial system is large and strongly interrelated with both the domestic real economy and global market
Renders Chile vulnerable to developments in international financial markets
Chile has conducted free trade agreements with many other countries
Chilean companies have strongly increased their investments in neighboring countries in recent years

13. History
In late 1960s and 1970s political polarization culminated in the 1973 coup by military that overthrew the Allende government
Established neo-liberal economic program – Chicago Boys
Military under general Pinochet ruled Chile until 1990
Political landscape has been dominated by center-left governments ever since – except for when a center right in office.
Since 1990 Chile has managed to reduce its traditionally high inequality but the level remains high
Recent years opposition to the economic and political elite has grown and support for the two voting blocks that have ruled Chile since 1990 has weakened
Large scale 2011 student protests were a reflection of this trend
However politics have remained relatively peaceful by Latin American standards

14. Recent Developments I
Central-left coalition of President Bachelet, which took office in March 2014 had ambitious plans to address
Chile’ high level of inequality and
Raise its long term growth rate
Economic headwinds and low popular support have forced government to moderate its ambitions
Proof of Chile’s relatively cooperative political climate
But reduces the government’s chances to improve the country’s fundamentals

15. Recent Developments II
Headwinds to the reform agenda originate from
Low economic growth which has increased pressure on government expenditures and lowered revenues
Business confidence and as a result private investment has suffered due to discontent about or at least uncertainty over the reform agenda
Finally Bachelet faces very low (less than 30%) approval ratings reflecting
disappointment on the left and
disapproval on the right
Prompted Bachelet to announce reforms will need to be prioritized
Expected that focus will be on further education reforms and labor reform

16. Recent Developments III

17. Recent Developments IV

18. Recent Developments V
After GDP growth fell sharply to 1.9% in 2014 mainly due to a sharp fall in private investment, growth has picked up in 2015/16 due to expansionary monetary and fiscal policy
Setback in growth in 2014 reflected large decline in copper prices as well as uncertainty about the government’s structural reform plans
In 2015 government employed available fiscal space to support growth through infrastructure expenditures
Lower oil prices offset some of negative effects of lower coper prices
Weaker peso supported non-mining exports

19. Outlook I Main risks to outlook are
further decline in copper prices (especially if the slowdown in China intensifies) and
persisting weakness in private sector confidence and investment over the government’s reform plans.
In the longer term, growth could be negatively influenced by the feed-through of the recent decline in copper prices (about 50%) from their 2011 peak
On the other hand, the government’s reforms could have a positive impact on longer term growth, especially by bridging development gaps in education and energy infrastructure.

20. Outlook II
Labor market reform by strengthening the position of unions and collective bargaining
could decrease income inequality
but might also increase labor market rigidities.
At this point not clear how far-reaching especially labor reforms will be and their impact on potential growth remains to be seen