2007_11_Chile: An overview

Chile: An OverviewChile: An Overview

Mr. Carlos Mladinic Mr. Carlos Mladinic New Dehli, November 2007New Dehli, November 2007

Chile at a Glance (2006)

Population: 16.3 MGDP: USD 145 BGDP per capita: USD 8.9 KIncome per capita (PPP): USD 12.9 KFDI (net inflow): $6.7 billionAnnual inflation: 2.6%Unemployment: 6% Adult literacy rate: 96% Corporate tax: 17%Remitted Profits Tax: 35% (corporate tax is credited towards remitted profits)

Tariffs • General 6%• Hardware 0%• 95% of imports pay no tax

(FTAs)

Time zone alignment

Overnight flights to the U.S.

Labor and Education• Total Labor Force : 6.1 million

• Labor Force in Santiago: 2.8 million

• Education:

- Primary: 98.6%

- Secondary: 90%

- Professional: 31.4%

Education Average (years)

Labor Force

National

10.59.2

8.57.5

20021992

Source: Ministry of Education of Chile (www.mineduc.cl), National Institute of Statistics (www.ine.cl ), 2006

More than 60 Universities

48 Professional Institutes

109 Technical Centers

21 MBA Programs

http://www.mineduc.cl/

http://www.ine.cl/

Chile, An Attractive Place to do Business

Chile is one of the most competitive countries in the world in terms of its positive business environment.

• Business Environment Rankings (Economist Intelligence

Unit)

• Ease of Doing Business (World Bank)

• Best Latin American Cities to do Business (America Economía)

The Best Places to Do BusinessRanking of the Best Places to Do Business in the Next Five Years (2006-2010)

(Out of 77 economies)

Source: Economist Intelligence Unit (www.eiu.com)

8

7

3

1

74

62

50

41

40

37

27

25

45

42

26

22

Denmark

Canada

United Kingdom

United States

Chile

Malaysia

Korea

Czech Republic

Poland

Thailand

South Africa

Mexico

Brazil

China

Russia

Pakistan

Developed countries Other emerging LATAM

Ease of Doing Business 2008(Out of 178 economies)

Source: World Bank (www.doingbusiness.org)

53

3837

31

138

31

8374

2415

172140

128109

10398

6658

44

33

Singapore

United States

Ireland

Finland

Thailand

Malaysia

France

Chile

Portugal

Spain

Mexico

Italy

Peru

Colombia

Poland

China

Uruguay

Paraguay

Argentina

Ecuador

Bolivia

Venezuela


Best Latin American Cities to do Business(Out of 42 cities)

Source: America Economia (www.americaeconomia.com)

42

41

40

39

20

14

11

10

5

4

1Santiago (Chile)

Sao Paulo (Brazil)

Buenos Aires (Argentina)

Mexico City (Mexico)

Bogota (Colombia)

Lima (Peru)

Montevideo (Uruguay)

Quito (Ecuador)

Asuncion (Paraguay)

La Paz (Bolivia)

Caracas (Venezuela)

Success FactorsChile’s dynamic business environment is the result of a policy-driven strategy that has focused on:

• Building sound macroeconomic fundamentals through a rules-based policy framework (characterized by a floating exchange rate, inflation targeting and a structural fiscal surplus rule)

• Advancing democracy, political freedom and civil liberties

• Actively encouraging international integration through free trade agreements and FDI

• Implementing strong social policies to promote social cohesion so all citizens benefit from economic growth

The Chilean EconomyToday, the Chilean economy is very well positioned to weather global macro and market uncertainty thanks to its solid fundamentals, characterized by:

• Record of strong growth

• High growth of industrial output

• Record investment rates

• Record employment levels• Low inflation rate

• Large fiscal surplus

• An export oriented economy

• Favorable outlook for the price of copper• Very low country risk

The Chilean Economy








Chile: GDP Growth (1990-2006)

3,7

8,0

12,3

7,0

5,7

10,6

7,4

6,6

3,3

-0,8

4,5

3,5

2,2

4,0

6,05,7

4,0

5,7

-2

0

2

4

6

8

10

12

14

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007*

GDP Growth (1990-2006)

6,5

4,5

3,2

3,12,9

2,7

2,5

2,4

2,21,8

1,6

1,4

9,8

6,1

4,6

1,5

5,5

3,33,2

2,3

0 1 2 3 4 5 6 7 8 9 10

ChinaIreland

IndiaChile

IndonesiaLuxembourg

ColombiaMexico

AustraliaSpain

United StatesNew Zealand

PortugalUnited Kingdom

BrazilDenmark

FranceJapan

RussiaItaly


The Chilean Economy








Industrial Output (August 2006-August 2007, 12-monthly var.)

1,6%

-2,6%

4,5%

2,4%

1,2%

2,9%

4,6%5,2% 5,2%

3,0%

6,7%

4,0% 4,0%

-4%

-2%

0%

2%

4%

6%

8%

Ag

o-0

6

Sep

-06

Oct-

06

No

v-0

6

Dic

-06

En

e-0

7

Feb

-07

Mar-

07

Ab

r-07

May-0

7

Ju

n-0

7

Ju

l-07

Ag

o-0

7

The Chilean Economy








Investment at record levels (% of GDP)

20,0%20,3%

20,9%

21,7%

22,6%

23,5%

24,1% 24,3% 24,2% 24,2% 24,1% 24,3%24,7%

20,0%

17%

18%

19%

20%

21%

22%

23%

24%

25%

1tr

im-0

4

2tr

im-0

4

3tr

im-0

4

4tr

im-0

4

1tr

im-0

5

2tr

im-0

5

3tr

im-0

5

4tr

im-0

5

1tr

im-0

6

2tr

im-0

6

3tr

im-0

6

4tr

im-0

6

1tr

im-0

7

2tr

im-0

7

The Chilean Economy








Unemployment (% of labor force)

5,0

6,0

7,0

8,0

9,0

10,0

11,0

12,0

Unemployment Deseasoned Unemployment

The Chilean Economy








Low Inflation RateLow Inflation Rate

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Ene-03 Jul-03 Ene-04 Jul-04 Ene-05 Jul-05 Ene-06 Jul-06 Ene-07 Jul-07

The Chilean Economy








Fiscal balance pre- & post rule (% GDP)

Source: Ministry of Finance

2,4%1,6%

2,1%1,4% 1,5%

3,1%

2,2% 2,0%

0,4%

-2,1%

-0,7% -0,5%-1,2%

-0,4%

2,1%

4,6%

7,5%

4,8%

1,0%0,6% 0,7% 1,0% 1,0% 1,0% 1,0%

0,5%

7,7%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

(e

)

20

08

(p

)

Efectivo Estructural

Política Fiscal

The Chilean Economy








Exports represent 62% of Chile’s total exchange with the

world

Chile is a “global trader” as it is reflected in this chart (with an ascending tendency)

Chile’s Trade with the World 1990 - 2006Chile’s Trade with the World 1990 - 2006

Source: General Directorate for International Economic Affairs

9.049 9.927 9.414

90.634

69.192

53.914

38.291

33.43033.902

35.268

29.93731.841

35.12932.205

31.35722.794

19.95819.38317.405

16.602

58.995

8.580 11.64516.454 15.395 17.017 14.754 15.915

18.425 17.668 17.676 20.627

31.460

39.252

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

50.000

55.000

60.000

65.00070.000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

Mill

ones

de U

S$

Exports represent 62% of Chile’s total exchange with the

world


LA13%

Europe29%

Nafta22%

Others3%

Asia33%

Chile’s Trade with the World (Exports, 2006)

China26%

Asean5%Others

10%

India8%

Japan33%

South Korea18%

Chile’s Trade with the World (Imports, 2006)


LA13%

Europe29%

Nafta22%

Others3%

Asia33%

China26%

Asean5%Others

10%

India8%

Japan33%

South Korea18%

The Chilean Economy




• Record employment levels and rising wages• Low inflation rate




Recent sustained copper price rise risks appreciating the exchange rate

0

50

100

150

200

250

300

350

400

Jan/

99

Jul/9

9

Jan/

00

Jul/0

0

Jan/

01

Jul/0

1

Jan/

02

Jul/0

2

Jan/

03

Jul/0

3

Jan/

04

Jul/0

4

Jan/

05

Jul/0

5

Jan/

06

Jul/0

6

Jan/

07

Jul/0

7

A measure of the “real” copper price (deflated by US PPI) reveals strength of recent appreciation

Spot LME copper price deflated by the US PPI

Source: Cochilco & Central Bank of Chile

-

50

100

150

200

250

300

350

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Exports by quantity: robust despite copper price appreciation

Source: Central Bank of Chile

80

90

100

110

120

130

140

150

160

170

1tr

im-0

4

2tr

im-0

4

3tr

im-0

4

4tr

im-0

4

1tr

im-0

5

2tr

im-0

5

3tr

im-0

5

4tr

im-0

5

1tr

im-0

6

2tr

im-0

6

3tr

im-0

6

4tr

im-0

6

1tr

im-0

7

2tr

im-0

7

Cobre No Cobre

The Chilean Economy




• Record employment levels and rising wages• Low inflation rate




Very Low Country RiskSovereign Spread: EMBI Global Spread

(Monthly averages, in basis points over USTBs)

164 167

138 140

82

161165

129 134

80

160168

121129

80

189

203

152144

90

232

249

200

176

108

226

243

192

176

121

0

50

100

150

200

250

Abr-07 May-07 Jun-07 Jul-07 Ago-07 Sep-07

Global Latin America Asia Europe Chile

A Further Competitive Edge

As well as these sound macroeconomic indicators, Chile has the advantage of:

• A growing network of Free Trade Agreements • High levels of transparency • Strong institutions • Competitiveness• A Freedom Economy • High levels of connectivity and Internet use• Excellent quality of life



USA

Mexico

EU

South Korea

El SalvadorCosta Rica

EFTA (European Free Trade Association,Iceland-Norway- Suitzerland- Liechtenstein)

New Zealand

Singapore

Malaysia

China

Japan

Vietnam

Brunei

Australia

Turkey

Chile has Preferential Market Access to 86% of world GDP

Peru

PanamaHonduras

UruguayParaguayArgentina BrazilBoliviaVenezuelaEcuador

India

Cuba

In ForceSignedUnder Negotiation

Guatemala

Colombia

CanadaChile’s Trade Agreements

USA

Mexico

SpainPortugalUKFranceSwitzerlandIrelandItaly South

Korea

NorwayDenmarkSweedenBelgiumHollandFinland

PolandCroatiaHungaryCzech Republic

Argentina BrazilEcuadorPeruParaguayColombiaVenezuela

In ForceSignedUnder Negotiation

Double_taxation Agreements

Cuba

Russia

MalaysiaChina

New Zealand

South Africa

Australia

India

Canada



Corruption Perceptions Index 2007(Out of 180 countries; 1 = least corrupt)

Source: Transparency International (www.transparency.org)

43

41

28

25

20

12

11

1

143

72

64

105

22

New Zealand

Australia

United Kingdom

United States

Chile

Spain

Portugal

Italy

South Korea

Turkey

China

Argentina

Russia




Quality of Institutions(Out of 125 economies)

Source: World Economic Forum (www.weforum.org)

% of Pupulation

% of Pupulation

71

47

36

27

17

8

7

4

1

80

91

69

25

Finland

Singapore

Germany

New Zealand

Ireland

Chile

United States

Spain

Korea

Mexico

Italy

China

Brazil




World Competitiveness Scoreboard (IMD)

Source: IMD, 2007

(Out of 66 economies)

30

20

12

1

53

52

43

27

55

49

47

26

USA

Australia

United Kingdom

Chile

India

Spain

Russia

Mexico

Brazil

Poland

Croatia

Venezuela


Global Competitiveness Index 2006 (WEF)

Source: World Economic Forum, 2007

(Out of 125 countries)

42

28

10

7

6

1

78

62

54

48

43

65

27

Switzerland

USA

Japan

United Kingdom

Chile

Spain

Italy

India

Poland

China

Russia

Colombia

UkraineDeveloped countries Other emerging LATAM



Economic Freedom Index(Out of 157 economies)

Source: Heritage Foundation (www.heritage.org)

60

45

43

27

19

18

6

4

1

119

110

52

11

Honk Kong

United States

United Kingdom

Chile

Japan

Germany

Spain

Portugal

France

South Africa

Italy

Indonesia

China




The Networked Readiness Index 2006–07(Out of 122 economies)

Source: World Economic Forum (www.weforum.org)

15

79

23

32

38

34

44

47

52

5859

70

31

49

5356

63

DenmarkSwitzerland

United StatesUnited

FranceChile

SpainCzech

ItalyIndia

South AfricaMexicoTurkey

BrazilCosta Rica

PolandChina

ArgentinaRussia




Human Development Index(Out of 177 countries)

Source: United Nations Development Programme

18

1

121

108

92

81

74

65

61

44

69

53

38

South Africa

Indonesia

Turkey

China

Thailand

Brazil

Russia

Malaysia

Mexico

Croatia

Chile

United Kingdom

Norway


Why all these economic indicators are important?

Reduction of Poverty (1990-2006)38,6

25,6

13,0

23,2

17,5

5,7

20,2

14,6

5,6

13,7

10,5

3,2

0

5

10

15

20

25

30

35

40

1990 1996 2000 2006

Total Poverty Non Extreme Poverty Extreme Poverty

Economic Growth, Trade and PovertyEconomic Growth, Trade and Poverty (1990-2006) (1990-2006)

-

20

40

60

80

100

120

1990 1992 1994 1996 1998 2000 2003 2006

US

$ B

illi

on

s

0

5

10

15

20

25

30

35

40

45

% o

f P

op

ula

tio

n

PIB TRADE POVERTY

Chile: An OverviewChile: An Overview

Mr. Carlos Mladinic Mr. Carlos Mladinic New Dehli, November 2007New Dehli, November 2007

Economy & Finance

2007_11_Chile: An overview