Background Information
THE CHILEAN ECONOMICAL MODEL, The Wall Street Journal,
March 13, 1992.
…"There is more to the Chilean model than meets the eye. While Chile's
economic development can be attributed to the creation of laws which protect the
principle of economic liberty. While Chile's success has been largely credited
to government measures such as eliminating state enterprises, the country's
underlying legal concept should not be overlooked by those countries emulating
the Chilean model. In a free market economy, the rule of law is a must. Chile
set up a rigorous regulatory framework with non-ambiguous banking, securities,
and antitrust laws. Guarantees of property rights were deemed necessary and led
to the creation of the Foreign Investment Statute (DL 600), under which foreign
investor rights are protected by a signed contract with the Republic of Chile. A
mining code was passed in 1981 barring the state from expropriating a privately
owned mining concession without paying its net present value. With respect to
import duties, a single across-the-board import tariff was established, thereby
avoiding opportunities for bribery and corruption often found in systems with
product differentiated tariffs. The Chilean experience underlines the importance
of basing the country's legislation on the principles of economic
liberty"…
13. Chilean Investment Abroad
During recent years, the internationalization of the Chilean economy
has brought with it a growing expansion and diversification of financial flows.
As part of this phenomenon, Chile not only has managed to attract foreign
capital, but also has begun to be a foreign investor. More and more large and
medium-size Chilean companies are investing significant sums to expand their
operations into other countries. This tendency represents significant progress
in the internationalization of the Chilean economy. In fact, Chile's foreign
investments averaged 2.7% of GDP between 1990-96, reaching 6.3% during the last
year. In such larger economies as the U.S., France, Japan and England, outward
investments represent, on average, a little more than 1.0% of GDP. Although it
began in the mid 1970's, Chilean foreign investment began to really take off in
1990. The overseas flow of Chilean capital has grown steadily, reaching an
accumulated US$12.2 billion from 1991 to 1996.
THE CHILEAN MODEL OF ECONOMIC OPENING, Le Monde, May 4,
1994.
…"The Chilean economic model has reached a level of success comparable to
that achieved by Asian countries. The two pillars of this Chilean social
economic progress are based on exports and the way in which Chilean economists
are eradicating poverty. The Chilean development strategy is based on growth
founded on international opening which has permitted an increase of Chilean
exports based on private investments and a strict budget policy according to the
rules of the international financial institutions"…
Investing in Chile
NEW UPGRADE IN CHILE'S COUNTRY RISK RATING, Standard &
Poor's, July, 1995.
…"Standard and Poor's, the New York based international risk rating firm,
upgraded Chile's rating for long-term debt in foreign currencies from BBB+ to
A-, which places the country among the 10 emerging markets with the lowest
investment risk"…
1. Investment Climate
Chilean policy toward foreign investment is and will continue to be
liberal and open. It reflects the need to attract foreign capital and technology
in order to stimulate development and to transform Chile into a modern,
efficient, and internationally competitive economy. The investment incentives
offered by the state are few. There exist some regional incentives, which are
available to foreign and domestic companies alike. Chile's best investment
incentive is its proven track record: solid economic growth and high corporate
profits within a stable legal system and a advantageous tax system.
2. Foreign Investment Statute
OPEN MARKETS ATTRACT INVESTMENT, Canadian Business,
October, 1994.
…"Since 1989, foreign investment has poured through Chile's borders,
especially to finance gold, copper and silver megaprojects. The boom shows no
signs of peaking. In a move that was considered virtually blasphemous among
ideologies of the time, foreign investment laws were liberalized to permit
investors to buy companies and repatriate earnings and, after a single year,
capital"…
The Foreign Investment Statue (Decree Law 600 of 1974 and its subsequent
amendments) is the law that regulates foreign capital and provides rules and
policies that are stable, clear, and simple. DL 600, which is considered to be
one of the most modern investment laws in the world, is the favorite means by
which investors bring capital into Chile.
The statute's basic principles are:
# non-discrimination between local and foreign investors
#
non-discriminatory treatment of investment applications
# no restricted
economic sectors or geographical regions
# no limit on percentage or duration
of foreign ownership of joint ventures, local enterprises, buildings, or
land.
# optional fixed tax rate for up to 10 years;
# unlimited
repatriation of profits (immediately) and capital (after one year);
#
additional benefits for certain investments of more that US$50 million (i.e.,
the right to OFFSHORE ACCOUNTS and guaranteed tax, export, and accounting
regulations for up to 20 years)
# free access to the formal exchange market
at the most favorable of exchange rate.
The DL 600 principles form the basis
for a legally binding contract between the foreign investor and Chile, as
represented by the Foreign Investment Committee.
3. Foreign Investment Protection
In addition to the protection provided by DL 600 and the Constitution,
Chile has also signed, and will continue to negotiate, a series of bilateral
Investment Protection and Promotion Treaties to assure an even greater degree of
security for foreign investors. Furthermore, under the Washington Accord of
1990, Chile agreed to submit investment disputes to international arbitration.
The fact the Chile was one of the first Latin American countries to sign the
agreement increased its attractiveness to foreign investors.
Economic Issues
The Economist, November 13, 1993.
…"The first thing to point out about Chile is that it is probably the best
managed economy in Latin America, and one of the best in the world"…
1. Economic Policy
Chile has a stable economic system due in part to the high degree of
consensus, especially since 1990, concerning the development model that has been
applied. Furthermore, the continuous improvement of policies and instruments
make it possible to achieve greater levels of efficiency within the economic
system. The Government's policy of impartially facilitating the efficient
operation of markets implicitly recognizes that the private sector is the
principal engine for development. For over two decades, economic policy has been
to liberalize the trade of goods, services, and factors; to improve regulations
by making them clear, simple, and stable; to control the size of government to
privatize using technical criteria; and to optimize the use of public
resources.
Economic Performance
IN REPORT, IMF TELLS A TALE OF TWO REGIONS, The Washington
Post, April 19, 1995.
…"Chile offers the one clear exception to the development model typical of
Latin America, according to the report. During the three-year period, Chile
posted economic statistics that prompted World Back chief economist Michael
Bruno to say it looks more like an Asian economy than a Latin economy: a saving
rate of 25%, an investment rate of 28%, a monthly inflation rate of 1.3%, and an
average annual growth rate of 7.1%"…
For the last two decades, the Chilean economy has been administered under
the principles of a social market economy, with a strict control over the
monetary and fiscal policies, an agile and liberal financial market, a strong
orientation towards exports, a clear policy of privatization, and a promotion
strategy to attract foreign investment. The administration and permanent
implementation of these principles have had their rewards. Chile has emerged
stronger and more solid. This position permits it to sustain its outstanding
level of growth. The benefits of the past structural reforms of the economy are
reflected in the following areas.
1. Economic Growth
Since 1985, there have been 13 consecutive years of economic growth,
with a record 11.0% in 1992. The average annual increase between 1990 and 1996
was 6.8%. In 1996, GDP totaled US$72 billion, or US$5,100 per capita.
11. Fiscal Policy
The national budget has had a surplus every year since 1987. In 1996,
the country posted a fiscal surplus of 2.2% of GDP.
12. Foreign Investment in Chile
The steady, rapid growth of foreign investment reflects investor
confidence in Chile and its future. During the past few years, foreign
investment by medium-sized companies has been particularly strong in a variety
of projects in many sectors of the economy. Generally, foreign companies come to
stay rather than to speculate.
In the capital account, there is a growing surplus due to the strong
capital inflow resulting from direct foreign investment, portfolio investments,
and issuing ADR, as well as a relative decrease in foreign debt. Having averaged
slightly over 2.0% of GDP between 1990 and 1996, foreign savings have helped a
great deal to finance the country's recent economic growth. In 1996, the current
account deficit was 4.0% of GDP, thereby increasing the relative importance of
external resources.
6. Inflation
The inflation rate has steadily fallen from 12.2% in 1993, 8.9% in
1994, 8.2% in 1995, to 6.6% in 1996. The goal for 1997 is 5.5%. A primary
objective of economic policy in recent years has been the gradual reduction of
inflation through sound fiscal and monetary management, primarily by controlling
spending and encouraging savings.
7. Interest Rates
The central Bank's monetary policy is based on the control of the short
term interest rates for index denominated instruments, which is turn affect
market interest rates and aggregate spending. Due to their impact, short-term
interest rates are regulated by the monetary authorities so that they are
compatible with the goals for spending, inflation, and external savings. This
policy has significantly reduced the fluctuations in the demand for money and
the effects that this has on economic activity. During the last 3 years, the
Central Bank has maintained an average annual interest rate of 6.7% for its
90-day notes in order to control inflation.
Recent Political History
NO GOING BACK, The Economist, June 3, 1995.
…"For 25 years Chile has been a laboratory for radical political and
economic experiments, a social-scientific guinea pig. At the end of it all, the
Chilean economy is easily Latin America's star performer"…
Chile has a strong democracy. The orderly transition from the military
regime of General Augusto Pinochet to the elected government of Patricio Aylwin
in March, 1990 went smoothly as planned. At the end of his term in March 1994,
Aylwin was succeeded by Eduardo Frei R. Like his predecessor, Frei is a member
of the Christain Democratic Party and heads the ruling coalition ("Concertacion
por la Democracia"). Frei, in his first State of the Nation address in June
1994, defined six basic tasks for his administration:
# to consolidate economic growth
# to perfect labor relations
#
to modernize the education system
# to increase the efficiency of the health
care system
# to eradicate poverty
# to increase Chile's participation in
international affairs
Government Organization
# Chile is a free, sovereign state formed by three independent branches of
government.
# The Executive Branch is headed by the President, whose
presidential term is 6 years. It also includes a ministerial cabinet. The
ministers are appointed by the President of the Republic and assist him in
exercising his presidential functions.
# The Legislative Branch consists of a
bicameral Congress. The Senate has 44 members, who serve 8 year terms, and the
Chamber of Deputies has 120 members, who serve 4 year terms.
# The Judicial
Branch is composed of the Supreme Court, located in Santiago, and a series of
appellate and lower courts (civil and criminal cases) and special courts (labor
relation, military, and juvenile cases) in Santiago and throughout the country.
In addition, there is an arbitration system for civil and commercial
disputes.
# The executive and judicial branches are located in Santiago,
while the legislative branch is located in Valparaiso.
# The country is
divided in 12 Regions plus Greater Santiago, 51 provinces, and 335
municipalities.
Socioeconomic Characteristics
Population
With a current population of roughly 13.5 million, or only 17.8
inhabitants/km2, Chile is one of the least densely populated countries in Latin
America. It is also one of the most urbanized, with 83% of the population living
in urban areas and 40% concentrated on Greater Santago (Region Metropolitana).
The 5 largest cities are Santiago (4.5 million), Vina del Mar (316,682),
Concepcion (314,953), Valparaiso (276,756), and Temuco (255,186). The annual
population growth rate is 1.6%, the product of a birth rate of 2.16/1000 and a
death rate of 5.4/1000. The average age is 26 years old. Furthermore, 75% of the
population is younger than 40 years old (42% are less than 20 years old), and
only 6% is older than 65 years old. For the year 2000, it is estimated that the
population will reach 15 million, with an average age of 29.
1. Ethnic and Religious Composition
Ethnically and religiously, the population of Chile is very homogenous
and integrated. The 60 % of the population is Caucasian White, 30 % Hispanics,
10 % Indians.
Although religious freedom exists, Chile is 75% Catholic, and Catholicism
plays a very important role in education and society in general. Other
religions, especially Protestantism (15% of the population), are growing
rapidly. Chilean customs are very similar to those of Europe due to the flow of
immigrants from Spain, France, Italy, and Germany, among others, in the late
19th and early 20th century. During the 19th century Chile receives a lot of
inmigrants from Germany, Austria, and Scandinavian Countries.
Tourist Attractions
Due to unusual geography, Chile has a great variety of scenic
landscapes: barren deserts, superb beaches, picturesque lakes, active volcanoes,
rapid rivers, snow-capped mountains, deep fjords, massive glaciers on the
mainland and in unspoiled Antarctica, and exotic island possessions in the
Pacific. These natural resources lend themselves to the following recreational
activities for both tourists and residents:
Snow skiing: Chile has some of the hemisphere's best centers with slopes
used for international races. Located near Santiago and other cities of the
country, they are open from June through September and have excellent snow
conditions, hotels, and services.
Fishing: The Pacific Ocean and numerous lakes and rivers offer excellent
fishing, particularly salmon and trout.
Water sports: Water skiing, rafting, sailing, scuba diving, surfing, etc.
are also practiced in Chile.
Adventure Tourism: Chile offers geysers, hot springs, salt flats, unusual
plants and animals, river rafting, mountain trekking and climbing, etc. There
are 41 national parks (18% of the national territory) and 42 reserves. The
United Nations has declared the national park of Juan Fernandez Island a world
biosphere reserve, as well as a center for adventure tourism.
Sightseeing: There are many historical attractions in Chile, such as
archaeological sites, colonial churches, native villages, etc.
Entertainment: Cultural attractions include concerts, wineries, theater,
art galleries, folklore festivals, museums, rodeos, restaurants, etc.
Recreation: Chile has numerous beach and lake resort centers with
outstanding hotels, services, and attractions.
If you have questions about Chile please feel free to write me; I try to
answer every email I receive.
My only request is be specific: general questions are difficult at best.
On the question of buying land ask about price range and what you want to
do with the property.
Andrea von Roth
Economist MBA
Equity, IPOs, Real State Projects
Offshore Strategies, Comprehensive Wealth Management
The Best Opening for you to Invest in Chile !
Info about investing in Chile by American News
papers Wall St Journal Washington post .
