Chile

High cruise speed

A1

LOW RISK

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

GDP USD277.076bn (World ranking 41, World Bank 2017)
Population 18.06mn (World ranking 63, World Bank 2017)
Form of state Presidential Republic
Head of government Sebastián Piñera
Next elections 2021, presidential and legislative
  • Natural resource base: Chile is the largest copper producer in the world, but also benefits from other minerals, forestry and agriculture
  • Strong medium-term growth
  • Business-friendly environment
  • Sound macroeconomic policy framework
  • Good external balance but could deteriorate
  • Widely accepted, democratic political system with successive peaceful transfers of power
  • Classified as an OECD high income economy
  • Sensitive to commodity prices, particularly copper
  • High level of income inequality
  • Numerous strikes and political street protests could trigger instability

An acceleration backed by copper and investments

In Q4 2018, GDP rebounded +1.3% q/q after slowing in Q3 (+0.2%), mainly driven by a strong growth in mining (+3.1%) as copper output rose to a historical high. On the demand side, both exports (+1.5% after -0.2% in Q3) and imports (+2.7% after -2.6%) rebounded. GDP grew +3.3% from Q4 2017, mainly driven by consumption, while investment positively contributed to growth for the fifth straight quarter. This puts 2018 annual GDP growth at +4%. Despite the acceleration, inflation went back below the 3% ±1pp target range (at +1.7% in February). This is consistent with the overall trend in Latin America. Hence the central bank could postpone its tightening cycle as the Fed’s pressure to hike rates eases from 2018.

Growth will stay strong in 2019 as copper prices stay resilient and progress on the tax reform sustains confidence. But it could slow to +3% given the Chinese mega-stimulus will benefit commodity exporters less than in 2016, and as the statistical carry-over is lower than in 2018.

Chile’s specialization in natural resources triggered its high integration in global value chains, but also exposed it to commodity price volatility. Yet the current account deficit is under control  and is almost entirely covered by net FDI flows while foreign exchange reserves provide a comfortable coverage of over 7 months of imports.

The monetary policy normalization will be very gradual

The monetary rate policy stance was mildly accommodative from mid-2017 until early 2018. Chilean inflation, better targeted than in other emerging economies, has been close to the lower bound (+2%) of the target range until May 2018. In 2019, inflation has been even lower so far (+1.7% in February). We expect inflationary pressure to build up only gradually, meaning a rate hike is not expected before 2020.

 

Stable pro-business environment

Tax and Pension Reform bills

 The tax reform under discussion aims to simplify the tax regime, stimulate private investment and includes tax benefits for SMEs. The government has recently said it would be open to discuss amendments with the opposition, which increases the probability of the reform being adopted.

In October 2018, President Piñera submitted to the Congress a pension reform which seeks to improve the country's pension system through increasing private  pension  contributions from the currently 10% to 14.2% of salaries and introducing competition to the pension provider system in an effort to reduce fees. Mr Piñera will be pressed for time to pass those reforms before the local election in October 2020. Both reforms are likely to be reviewed by the Congress as Piñera’s government does not hold the majority. 

Good business environment

Chile carried out 2 reforms in the past year to improve its business climate: The introduction of an electronic system, which made it easier to start a new business; allowing plaintiffs to file initial complaints electronically, improving contract enforcement. As aresult of those reforms, the country gained one rank in the last World Bank Doing Business Survey, ranking 56 out of 190 countries. Chile's stable institutions and business-friendly regulations secure the attractiveness of the country to foreign investors.

Trade structure by destination/origin

(% of total)

Exports Rank Imports
China 27%
1
24% China
United States 12%
2
22% United States
Japan 8%
3
8% Brazil
South Korea 6%
4
5% Germany
Brazil 5%
5
4% Argentina

Trade structure by product

(% of total)

Exports Rank Imports
Non Ferrous Metals 26%
1
7% Refined Petroleum Products
Non Ferrous Ores 25%
2
5% Cars And Cycles
Other Edible Agricultural Prod 9%
3
4% Crude Oil
Meat 7%
4
4% Telecommunications Equipment
Paper 4%
5
4% Commercial Vehicles

Although the payment behavior of domestic companies is generally good, with payments normally taking place within 60 days on average, standard payment terms are very broad (60 to 90 days).

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

 

Courts are trustworthy however the system provides no fast track proceedings, meaning pre-legal action conducted by collection specialists is the most efficient way to obtain payment without incurring legal costs and delays.

Debt renegotiation mechanisms aiming at rescuing companies have been put in place but these are rarely used, with liquidation remaining the default proceeding when it comes to dealing with insolvent debtors. Therefore the chances of collecting unsecured debt through insolvency courts are nonexistent

Download the entire collection complexity PDF:

Collection complexity Chile

pdf | 879.8 KB