Fundamentals%20of%20the%20Chilean%20Economy

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Fundamentals of the Chilean Economy

• Central Bank of ChileOctober 2002

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Fundamentals of the Chilean Economy
Macroeconomic and Financial Stability
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Monetary Strength
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Chile Nominal Exchange Rate (CLP/USD)
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Chile Monetary Policy Interest Rate ()
Before June 1995 PRBC 90 days rate
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Chile Real Exchange Rate (index, 1986100)
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Chile Long-Term Int. Rate Central Bank
Instruments () CPI-adjusted
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Fiscal Strength
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Fiscal Balance Average 1992-2001 ( GDP)
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Public Debt 2001 ( GDP Source Moodys and
Ministry of Finance)
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Chile Fiscal Balance( GDP)
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Financial System Strength
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Chile Banking Solvency Indicators ()
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Ranking of Banking Strength(Source Moodys,
july 2002)
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Chile Financial Savings by Institutional
Investors ( GDP)
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Chile Domestic Corporate Bond Market (USD
billions)
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External Sector Strength
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Chile Total Exports Volume(index 1990100)
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Chile Exports by Sector( total exports)
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Chile Distribution of Merchandise
Exports(January-August 2002)
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Chile Current Account Deficit ( GDP)
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Chile Cumulative Investment Abroad ( GDP)
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Net International Reserves ( Short Term Debt
Amortizations)
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Sovereign Spreads (basis points, September 2002)
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Microeconomic Institutional Strength
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Competitiviness Ranking 2002(Source
International Institute for Management
Development)
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Economic Freedom Index 2001 (Source The
Heritage Foundation)
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Corruption Index (June 2001 Source
Transparency International)
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Macroeconomic Stability
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Chile GDP, 1960-2002(billions of 1996 Chilean
pesos)
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Chile GDP Growth(Annual )
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Chile Inflation and Targets(annual )
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Recent Structural Reforms
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Further Trade Integration
Bilateral and Multilateral Negotiations

• Free trade agreement with EU

• Currently negotiation Free Trade agreements with
  the US, EFTA, Korea

• WTO, FTAA

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Capital Markets Reforms Central Bank

• Elimination of all remaning foreign exhange
  restrictions

• Substitution of nominal MPR for CPI-adjusted MPR

• Streamlining of debt issued by the Central Bank

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Capital Markets Reforms legal changes

• New corporate governance and tender offer
  regulation

• Elimination of capital gains tax on liquid stocks
  and reduction of withholding tax on interest from
  35 to 4 on local bonds for foreign investors

• Increased flexibility for allocation of personal
  savings

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How to Reduce Growth Volatility?
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GDP Growth(Annual )
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Terms of Trade(index 1990100)
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Chile Exports by Sector( total exports)
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How to Reduce Growth Volatility?

• Fiscal policy based on rules.

• Inflation-targeting monetary policy (nominal
  anchor)

• Flexible exchange rate policy (interest rate
  stabilization)

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Inflation and Targets(annual )
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How to Reduce Growth Volatility?
Other Factors

• Copper and oil compesatory funds

• Saving guaranteed by Pension Funds

• Banking and no banking finance

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Chile Financial Savings by Institutional
Investors ( GDP)
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Chile Domestic Corporate Bond Market (USD
billions)
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Fundamentals of the Chilean Economy
Macroeconomic and Financial Stability
47
Fundamentals of the Chilean Economy

• Central Bank of ChileOctober 2002