Chile: Economy

Chile has pursued sound economic policies for nearly 3 decades. The government's role in the economy is mostly limited to regulation, although the state continues to operate copper giant CODELCO and a few other enterprises, including one state-owned bank--Banco Estado. Chile joined the Organization for Economic Cooperation and Development (OECD) in 2010, the first South American nation to do so.

Chile is strongly committed to free trade and has welcomed large amounts of foreign investment, and the business climate is generally straightforward and transparent. Chile's sound, market-oriented policies have created significant opportunities for foreign investors to participate in the country's steady economic growth. Foreign investors receive treatment similar to Chilean nationals in nearly all sectors. There are generally no special exemptions or incentives for foreign investment as a matter of policy. A broad political consensus on the advantages of foreign investment means that Chile's policies toward foreign direct investment are unlikely to change. The country has trade agreements with 60 countries, including a free trade agreement (FTA) with the United States, which was signed in 2003 and implemented in January 2004. An FTA with Australia went into effect in early 2009, and Chile concluded an FTA with Turkey in mid-2009. The United States and Chile are participating in trade negotiations in the Trans-Pacific Partnership, along with seven other nations.

Chile's overall trade profile has traditionally been dependent upon copper exports. The state-owned firm CODELCO is the world's largest copper-producing company, with recorded copper reserves of 200 years. Chile has made an effort to expand nontraditional exports. The most important non-mineral exports are forestry and wood products, fresh fruit and processed food, fishmeal and seafood, and wine. In 2010 total exports were $69.6 billion, an important increase from 2009 ($53.7 billion) due mainly to cooper prices. Imports increased from $39.7 billion in 2009 to $54.5 billion in 2010, driven in large part by higher petroleum prices. In 2010, China was Chile’s largest export market, followed by Japan, the United States, Brazil, and the Netherlands. Chile’s most important sources of imports are the United States, China, Brazil, Argentina, and South Korea.

Chile's approach to foreign direct investment is codified in the country's foreign investment law, which gives foreign investors the same treatment as Chileans. Registration is simple and transparent, and foreign investors are guaranteed access to the official foreign exchange market to repatriate their profits and capital. Net foreign direct investment in Chile in 2010 was $18.2 billion, up 43% over 2009.

Chile's government has received high marks from economists and its citizens for its countercyclical spending in 2009 (financed largely from saved copper revenues) to offset the effects of the global economic crisis. Chile has emerged from the recession that resulted from the global economic downturn as well as the economic dislocation caused by the February 2010 earthquake. Economic growth was 1.5% in 2009 and 5.2% in 2010; the economy is expected to grow around 6% in 2011.

The government is required by law to run a fiscal surplus of at least 1% of GDP; however, this rule was changed to 0.5% of GDP in 2008, and waived for 2009, given the pressures from the global economic crisis. The government had a structural deficit of 1.2% in 2010.

Unemployment reached almost 11% in mid-2009; however, it averaged 8% in 2010. Wages have risen faster than inflation as a result of higher productivity, boosting national living standards. The percentage of Chileans with incomes below the poverty line--defined as twice the cost of satisfying a family of four's minimal nutritional needs--fell from 46% in 1987 to around 18% by 2005; since 2006, the percentage of Chileans below the poverty level had been between 13% and 14%, but the economic downturn drove these numbers back up over 15% in 2009.

Chile's independent Central Bank currently pursues an inflation target of 3%. In 2007, inflation inched toward 8%--the first time inflation had exceeded 5% since 1998. In 2008, inflation increased further, hitting a high of 9.9% in October 2008, before moving lower again at the end of the year. In 2009 and 2010, inflation in Chile decreased to between 2% and 2.7%--within the Central Bank’s target range.

The Chilean peso floats freely and has shown some volatility in recent years. In March 2008, the Chilean Central Bank began a program of buying dollars to slow the appreciation of the pesos, and then suspended those operations in November 2008 when the peso depreciated significantly because of the global financial crisis. The peso strengthened 8.4% in 2010, and in January 2011, the Central Bank announced it would purchase $12 billion in reserves over 2011 to slow the appreciation of the peso.

The Chilean Government estimated that the February 27, 2010 earthquake and tsunamis destroyed 3% of Chile’s capital stock and cost around $30 billion, more than 17% of Chile’s GDP. The government spent several hundred million dollars on emergency relief measures and committed an initial $8.4 billion for reconstruction focused in four main areas: rebuilding homes, reconstructing schools, restoring public infrastructure, and providing health care in heavily affected areas. In February 2011, at the 1-year anniversary of the earthquake, Chile had made significant progress on rebuilding infrastructure (roads, bridges, potable water) and schools, but was still striving to provide permanent housing solutions and to rebuild the health care infrastructure.

Energy, Climate, and Environment
If Chile meets its stated goal of 6% annual economic growth, its energy demand could nearly double by 2020. While the economy as a whole is expanding, providing energy to the booming mining sector (investments up to $100 billion over 10 years) is particularly challenging. Chile has considerable hydroelectric resources, but relies on imported hydrocarbons to meet approximately 70% of its energy needs. Chile reduced previous dependence on imported gas from Argentina by completing two liquefied natural gas (LNG) re-gasification terminals, but pays high prices for long-term contracts. Chile is increasing thermoelectric capacity and exploring the option of civil nuclear energy.

A drought in 2010-2011 has reduced hydroelectric production and raised concerns about electricity rationing. Longer term, Chile is exploring tapping into its considerable renewable energy sources, pursuing solar, wind, geothermal, biofuels and biomass projects, and looking to collaborate on energy with neighboring countries.

U.S.-Chile collaboration on the environment includes sustainable development, air pollution, energy efficiency, conservation and wildlife management, marine protected areas, environmental law enforcement, and agricultural best practices. Chile-U.S. cooperation includes projects under the Environment and Climate Partnership of the Americas (ECPA) announced at the April 2009 Summit of the Americas and a memorandum of understanding (MOU) on clean energy and energy efficiency cooperation signed during the June 2009 U.S. visit of President Bachelet. Cooperation on energy issues bolsters our partnership in key areas, including actively promoting the use of U.S. renewable energy technologies (solar, wind, and geothermal), science and technology (S&T), innovation, education, and ways to address greenhouse gas emissions and climate change.

Many U.S. technical agencies are actively engaged in Chile, including the U.S. Environmental Protection Agency, the U.S. Geological Survey, and the National Oceanographic and Atmospheric Administration. In 2008, Chile’s best-known national park, Torres del Paine, and the U.S. Yosemite National Park signed a sister park agreement to promote information and expert exchanges; in April 2009, Santiago’s Parque Metropolitano and San Francisco’s Golden Gate Park also became sister parks.

Chile is a constructive participant in international talks under the UN Framework Convention on Climate Change, supporting the Copenhagen Accord in 2009 and the Cancun Agreements in 2010. The country also pledged to reduce greenhouse gas emissions 20% by 2020 (from a 2007 base).

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