Chile WT/TPR/S/220 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. Chile's GDP grew at an annual average rate of 4.8 per cent in real terms between 2003 and 
2008, supported by a strong increase in domestic dema nd.  The rate of growth declined in mid-2008 
as a result of the international crisis, and the Chilean economy experienced a contraction at the 
beginning of 2009.  Chile's per capita GDP in 2008 was some US$10,087, one of the highest in Latin America.  The positive economic results achieved during most of the period under review 
reflect a strong macroeconomic leadership and a level of economic openness and international 
integration that allowed Chile to benefit fro m an international environment of growth. 
2. However, because it has a small and open economy,  Chile has been affected by the global 
financial crisis, mainly as a result of deterioration in the terms of trade, and by the tightening of 
overall financial conditions.  In orde r to cope with the crisis, Chile is implementing a combination of 
counter-cyclical policies, including a large fiscal  stimulus package and an aggressive policy of 
reducing its key interest rate.  The authorities believe that Chile is well prepared to tackle the current 
crisis thanks to its fiscal solvency and a well-regulated and capitalized financial system. 
3. Chile maintains an inflation-targeting monetary  regime, which enabled it to keep inflation 
rates low between 2003 and 2007.  An increase in exte rnal inflationary pressures prompted Chile to 
tighten its monetary policy between 2007 and the e nd of 2008 in order to avoid a pass-through of 
inflation to domestic prices, but it loosened that polic y in the early months of 2009 in view of the drop 
in inflation and the increase in spare capacity resulting from the international economic crisis. 
4. One of the pillars of Chile's macroeconomic stability has been the prudent fiscal policy 
implemented by the Government, which has helped  Chile to reduce fluctuations in GDP.  Fiscal 
policy since 2007 has been based on the achievement of  a structural surplus.  Chile recorded a fiscal 
surplus between 2004 and 2008.  Based on what has b een observed during the first quarter of the year, 
a fiscal deficit attributable to decreased revenue is  expected in 2009.  The fiscal position has been 
strengthened by the use of sovereign funds and pa yment on the public debt, as a result of which the 
Chilean treasury went from a debtor position to that of a net creditor. 
5. Chile's balance-of-payments current account  posted a surplus between 2004 and 2007, due 
mainly to the increase in copper exports.  The cu rrent account posted a deficit in 2008 due to lower 
copper prices and increased imports, but in the first quarter of 2009 it again showed a surplus.  Chile's 
exports continue to be based primarily on natura l resources, particularly mining and specifically 
copper, as well as on agricultural products (including  forestry and fishing).  These products generated 
some 87 per cent of total merchandise export revenue  in 2008.  Chile's main trading and investment 
partners are the European Union and the United St ates of America, although China's importance as a 
trading partner has grown during the period under review. 
6. During the period under review, Chile experien ced a strong inflow of foreign direct 
investment, exceeding US$17.4 billion, which mostly be nefited the electricity, gas, water, mining, and 
communications sectors. WT/TPR/S/220 Trade Policy Review 
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(2) MACROECONOMIC TRENDS  
(i) Economic structure and trends 
7. The Chilean economy experienced dynamic growth during most of the period under review.  
GDP grew at an average annual rate of 4.8 per cen t in real terms between 2003 and 2008 (Table I.1).  
This rate of growth corresponded roughly to th e Latin American average for the period and was 
slightly above the potential rate of growth of GDP, which the International Monetary Fund (IMF) 
estimates at 4.5 per cent.  As the IMF indicates, th e framework for Chile's economic policies, mainly 
fiscal policy, is geared to the achievement of a structural surplus (see below) and has permitted 
sustained growth, preventing the economy from overh eating and delinking it from the effects of the 
copper price increase, since most of the mining revenue has been deposited in sovereign funds 
abroad.1 
8. Chile's per capita GDP rose in 2008 to some US$10,087, one of the highest in Latin America 
and far higher than the US$4,746 recorded in 2003.  As a result of rapid economic growth and the policies adopted by the Government, the propor tion of the population living below the poverty 
threshold decreased significantly, to 14 per cent in 2 008, the lowest level in Latin America and well 
below the 21.2 per cent seen in 2000.  Income distribution ine quality also decreased; the Gini 
coefficient stood at 52.2 per cent in 2008,  below the 57 per cent recorded in 2000. 
9. In terms of constant pesos (volumes), the sectoral composition of the Chilean economy did 
not change much during the period under review, as s hown in Table I.1.  On the other hand, in terms 
of current pesos, the sectoral composition has undergone major changes due to the extraordinary 
growth of mining (see Chapter IV(4)).  Up to mid-2008, growth in the agricultural, manufacturing and 
services sectors was generally positive, although manufacturing's percentage share of GDP decreased slightly (see Chapter IV(5)).  The share of services in GDP recovered, reaching 66.9 per cent in 2008, 
after having been affected by the contraction in electricity production (see Chapter IV(6)). 
10. Between 2003 and 2008,  the total employed population increased from 5.78 million to 
6.63 million.  Paid employment represents a larg e share of job creation during the period.  The 
unemployment rate fell from 10 per cent in 2004 to 7.0 per cent in 2007, then rose to 7.7 per cent in 
2008 (Table I.1).  Real wages increased 8.5 per cent between 2003 and 2008.  Productivity per worker 
(GDP/employment) grew by 10.1 per cent in real terms between 2003 and 2008. 
Table I.1  
Structure of the economy, 2003-2009  
  2003 2004 2005 2006 2007 2008a 2009 Ib 
Share of GDP (percentage)   
Breakdown by sector (constant 2003 Ch$ million)   
Agriculture and forestry 3.6 3.7 3.8 3.9 3.7 3.7  
Fishing 1.2 1.4 1.3 1.2 1.2 1.2  
Mining 8.4 8.5 7.7 7.4 7.3 6.7  
   Copper mining 7.0 7.0 6.3 6.1 6.0 5.5  
   Other mining activities 1.4 1.4 1.4 1. 3 1.3 1.2  
Manufacturing industry 16.4 16.6 16.6 16.5 16.3 15.8  
   Food, beverages, and tob acco 4.9 4.9 4.9 4.9 4.8 4.8  
   Textiles, clothing, and l eather 0.8 0.8 0. 8 0.8 0.7 0.7  
   Wood and furniture 1.1 1.2 1.1 1.1 1.0 1.0  
   Paper and printed matter 1.7 1.8 1.7 1.7 1.9 1.9  
                                                      
1 International Monetary Fund (IMF) (2008), Chile:  2008 Article IV Consultation – Staff Report;  Staff 
Statement;  Public Information No tice on the Executive Board Discussion ;  and Statement by the Executive 
Director for Chile .  IMF Country Report No. 08/240, Washington, D.C., July 2008.  Viewed at:  
http://www.imf.org/external/pub s/ ft/scr/2008/cr08240.pdf Chile WT/TPR/S/220 
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  2003 2004 2005 2006 2007 2008a 2009 Ib 
   Chemicals, petroleum, rubber, and plastic 4.6 4.6 4.6 4.7 4.4 4.2  
   Non-metallic minerals and basic me tal industries 1.3 1. 4 1.4 1.4 1.4 1.2  
   Metal products, machinery and equipm ent, other 1.9 1.9 2.0 1.9 2.0 2.0  
Services 65.3 64.7 65.3 65.6 65.8 66.9  
   Electricity, gas and water 2.9 2.8 2.7 2.8 1.9 1.8  
   Construction 6.9 6.7 7.0 7.0 7.0 7.5  
   Commerce, restaurants and hotels 9.7 9.8 10.1 10.3 10.4 10.5  
   Transport 6.9 6.8 6.9 7.1 7.2 7.3  
   Communications 2.3 2.3 2.4 2.4 2.6 2.8  
   Financial and business serv ices 15.0 15.2 15.6 15.6 16.3 16.8  
   Real estate 5.8 5.6 5.5 5.4 5.4 5.4  
   Personal services 11.6 11.3 11.0 10.9 10.9 10.8  
   Government 4.3 4.2 4.1 4.1 4.0 4.0  
Minus:  Bank imputations 3.4 3.5 3.9 3.9 4.4 4.6  
Plus:  Net VAT collected 7.4 7.5 7.7 7.9 8.2 8.4  
Plus:  Import duties 1.0 1.2 1.4 1.5 1.9 2.0  
Real rates of growth (percentage)         
Total GDP .. 6.0 5.6 4.6 4.7 3.2 -2.1 
Breakdown by sector         
Agriculture and forestry .. 8.3 9.3 6.6 0.4 3.0 9.5 
Fishing .. 19.1 0.9 -3.5 5.6 -0.7 5.4 
Mining .. 6.1 -3.9 0.7 3.1 -5.0 -6.7 
   Copper mining .. 5.9 -4.9 0.3 3.5 -5.8 -6.4 
   Other mining activities .. 7.2 1.2 2.6 1.4 -1.6 -8.1 
Manufacturing industry .. 7.0 6.0 3.9 3.1 0.0 -10.3 
Services .. 5.1 6.5 5.0 5.0 4.8 27.7 
   Electricity, gas and water .. 2.8 3.0 7.6 -28.8 -4.0 -1.3 
   Construction .. 3.2 10.1 4.0 5.4 9.7 -5.9 
   Commerce, restaurants and hotels .. 7.3 8.5 6.9 6.1 3.8 -4.0 
   Transport .. 4.4 6.7 7.5 5.8 5.0 5.2 
   Communications .. 8.9 7.3 5.4 14.7 10.4 -0.7 
   Financial and business serv ices .. 7.9 8.4 4.5 9.4 6.1 3.9 
   Real estate .. 2.6 3.3 3.2 3.7 3.9 -0.7 
   Personal services (education, hea lth and other) .. 3.4 3.3 3.7 4.8 2.1 3.9 
   Government .. 2.2 3.8 3.3 3.6 2.7 -1.9 
Minus:  Bank imputations .. 10.7 15.6 6.1 15.8 9.9 2.9 
Plus:  Net VAT collected .. 8.5 8.1 6.6 8.5 6.3 -1.3 
Plus:  Import duties .. 24.1 22.0 11.3 33.8 9.0 -2.1 
II.  Employment         
Rate of unemployment (percentage) 9.5 10.0 9.3 8.0 7.0 7.7  
Real wages/hour index (Jan. 2006=1 00) 95.04 96.77 98.57 100.50 103.33 103.12 106.39 
Population (million) 15.6 15.8 16.3 16.4 16.6 16.8 .. 
.. Not available due to change in series in 2003. 
a Preliminary figures. 
b First quarter. 
Source:  Central Bank of Chile.  
11. From the standpoint of domestic spending, the period 2003-2008 was marked by a significant 
increase in investment and a steady growth of privat e consumption.  The investment rate reached its 
historic peak during 2008, to stand at 30.2 per cent of  GDP in real terms.  This increase in investment 
was mainly attributable to the mining and energy sectors.  A slowdown in investment, along with a 
smaller investment in machinery and equipment, has been recorded since the fourth quarter of 2008.  
The authorities have noted that this contraction is due to the uncertainty caused by the crisis, which 
has led companies to make more cautious spendi ng decisions, resulting in  the postponement and 
suspension of investment projects.   
12. A steady growth of domestic demand was seen  throughout this period, mainly because of 
rapid growth in gross fixed capital formation,  but also because of the strong performance of 
household consumption.  The growth of domestic demand declined in mid-2008 as a result of the 
international crisis, which had an impact on export revenue, increased the cost of external borrowing, WT/TPR/S/220 Trade Policy Review 
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and worsened the expectations of economic opera tors.  The upward trend in domestic demand was 
also affected by the delayed effect of the adoption of a tight monetary policy in 2007 and 2008, during 
the time of economic boom, when an international crisis was not yet foreseen.  At the beginning of 
2009, the Chilean economy experienced contraction, fuelled by a sharp decrease in investment and 
durable goods consumption and by the extremely dele terious effect of a change in inventories.  
Among the chiefly cyclical factors that contributed to this outcome are the aforementioned tighter monetary policy, the downward adjustment of copper prices, and the spillover effects of the 
international financial crisis, includi ng the increased cost of borrowing. 
13. The shares of both exports and imports of goods and services in GDP increased (Table I.2).  
In spite of the rapid growth of exports, due mainly to the fact that copper prices increased 
substantially up to 2008, the contribution of net ex ports to real GDP was negative during most of the 
period under review, since the performance of imports was more dynamic than that of exports in real 
terms.  This period saw strong imports of capital goods , consistent with the high investment rate, and, 
to a lesser extent, an increase in  fuels imports.  The contribution of net exports to real GDP became 
positive in the first quarter of 2009, because domest ic demand contracted much more sharply than 
GDP, so that imports of goods and servi ces dropped significantly more than exports. 
Table I.2 
Evolution and structure of GDP by type of expenditure, 2003-2009 
  2003 2004 2005 2006 2007 2008 2009 Ia 
I.  Gross domestic product (GDP)         
GDP at current prices (Ch$ billion) 51. 156,4 58.303,2 66. 192,6 77.830,6 85. 621,1 88.535,2 .. 
GDP at current prices (US$ million)  73,990 95,653 118,250 146, 773 163,881 169,458  
GDP at constant prices (2003, Ch$ billion) 51.156,4 54.246,8 57. 262,6 59.891,0 62.694, 1 64.677,0 15.738,6 
GDP per capita (current US$) 4,746 6,064 7,255 8,950 9,872 10,087 .. 
II.  Real GDP and its components (rates of growth) (%) 
Real GDP .. 6.0 5.6 4.6 4.7 3.2 -2.1 
  Domestic demand .. 7.5 10.4 6.8 7.8 7.4 -7.6 
    Gross fixed capital formation .. 10.0 23.9 2.3 12.0 19.5 -9.3 
      Construction and other works .. 3.4 10.7 3.0 7.4 10.5 -3.5 
      Machinery and equipment .. 22.8 45.3 1.5 17.8 29.8 -15.8 
    Total consumption .. 7.0 7.1 7.0 7.1 4.2 -0.6 
      Individual consumption .. 7.2 7.4 7.1 6.9 4.3 -1.4 
      Government consumption .. 6.1 5.9 6.4 8.0 4.0 3.9 
  Exports of goods and services .. 13.3 4.3 5.1 7.6 3.1 -2.7 
    Exports of goods .. 15.7 3.8 4.1 7.1 1.6 -3.0 
    Exports of services .. 3.9 6.5 9.4 9.6 9.3 -1.5 
  Imports of goods and services .. 18.4 17.2 10.6 14.9 12.9 -14.8 
    Imports of goods .. 21.4 19.8 11.6 16.4 15.3 -16.3 
    Imports of services .. 6.4 5.0 5.2 6.9 -1.8 -5.3 
III.  GDP at constant prices, percentage composition (%)  
  Domestic demand 95.9 97.2 101.6 103.7 106.8 111.2 99.6 
    Gross fixed capital formation 20.1 20.9 24.5 24.0 25.7 29.7 24.8 
      Construction and other works 13.3 12.4 12.7 12.0 12.5 14.7 13.9 
      Machinery and equipment 6.9 8.0 11.0 10.6 12.0 15.1 10.9 
    Total consumption 74.8 75.5 76.6 78.4 80.2 81.0 78.6 
      Individual consumption 62.8 63.5 64.6 66.1 67.5 68.2 66.7 
      Government consumption 12.0 12.0 12.1 12.3 12.6 12.8 11.8 
    Changes in inventories 1.0 0.8 0.5 1.4 1.0 0.5 -3.8 
  Exports of goods and services 36.5 39.0 38.6 38.8 39.8 39.8 41.8 
    Exports of goods 29.2 31.8 31.3 31.2 31.9 31.4 33.6 
    Exports of services 7.3 7.2 7.3 7.6 7.9 8.4 8.2 
  Imports of goods and services 32.4 36.2 40.2 42.5 46.6 51.0 41.4 
    Imports of goods 26.0 29.8 33.8 36.1 40.1 44.8 35.1 
    Imports of services 6.4 6.4 6.4 6.4 6.6 6.3 6.3 
IV.  Other economic indicators (% GDP)         
Gross national savings 20.0 22.2 23.4 24.9 25.1 22.2c .. 
Foreign savings 1.1 -2.1 1.2 -4.9 -4.5 2.4c .. 
Note The calculation methodology was modified as of 2003. 
.. Not available. 
a First quarter. 
Source:  Central Bank of Chile. Chile WT/TPR/S/220 
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14. Chile's gross domestic savings rate was 22 per cen t in 2008;  foreign savings, which had been 
negative between 2005 and 2007, became positive, contri buting to a gross domestic savings rate of  
24.6 per cent in 2008. 
(ii) Fiscal policy 
15. The responsibility for formulating and implementing fiscal policy rests with the Ministry of 
Finance.  Chile's fiscal policy during the period  under review continued to be geared towards 
maintaining structural surpluses and provident funds which can serve as future cushions in the event 
of potential fiscal imbalances. 
16. The policy of attaining a structural surplus,  applied since 2000, is aimed at medium-term 
fiscal stability, while permitting counter-cyclical m easures in periods of slower economic growth.2  
Initially, this surplus was 1 per cent of GDP, but was reduced to 0.5 per cent of GDP in 2008.  A recent IMF study underscores the appropriateness of  this reduction in view of the economic cycle.
3  
Given the adverse international environment, the Gove rnment decided to set the structural surplus at 
0.0 per cent of GDP in 2009, which, according to th e authorities, has left room for implementing an 
active counter-cyclical policy.4 
17. Chile recorded a fiscal surplus between 2004 and 2008 (Table I.3).  This reflected a 
substantial increase in revenue, par ticularly tax revenue, as well as c ontrol of spending.  The revenue 
increase was partly the result of a favourable intern ational environment, with high copper prices and 
rapid growth rates.  High operating surpluses, which reached their peak in 2007, were seen throughout 
this period.  The fiscal surplus has narrowed sinc e the last quarter of 2008 owing to the change in 
international circumstances, but the structural surp lus target was met in 2008.  In that year, tax 
revenue fell by 8.2 per cent in real terms, while  spending increased by 6.7 per cent.  Reflecting the 
economic situation, central government finances showed a slight deficit in the first quarter of 2009.  
The authorities believe that this deficit follows the logic of the structural surplus rule, which provides 
for higher spending in periods of lower econom ic activity, thus stimulating the economy. 
Table I.3 
Central Government finances, 2003-2009 
(As a percentage of GDP) 
  2003 2004 2005 2006 2007 2008 2009 Ia 
I.  Revenue 20.7 22.0 23.8 25.8 27.5 26.1 5.1 
Net tax revenue 15.9 15.6 16.9 17.0 18.9 18.4 4.0 
Unwrought copper 0.8 3.0 3.7 5.7 4.8 3.6 0.1 
Estimated taxes 1.4 1.4 1.4 1.4 1.3 1.4 0.4 
Grants 0.2 0.1 0.1 0.1 0.1 0.1 0.0 
Income from assets 0.6 0.4 0.3 0.5 1.2 1.3 0.2 
Operating revenue 0.8 0.7 0.6 0.6 0.5 0.6 0.2 
Other revenue 1.0 0.8 0.7 0.6 0.7 0.7 0.2 
II.  Expenditure 17.9 16.8 16.1 15.1 15.4 17.1 4.8 
Personnel 4.2 3.9 3.8 3.6 3.6 4.0 1.2 
Consumer and producer goods and services 1.6 1.7 1.8 1.8 1.9 1.9 0.5 
Interest 1.1 1.0 0.8 0.7 0.6 0.5 0.2 
Subsidies and grants 5.5 5.2 5.0 4.8 5.0 6.1 1.6 
                                                      
2 The structural balance differs from the effective balance in that it separates the cyclical component of 
fiscal accounts from the balance, in an  effort to show, for each year, what the net result of the fiscal accounts 
would have been if the economy had followed its medium-term path in that year. 
3 IMF (2009), Chile’s Structural Fiscal Surplus Rule: A Model-Based Evaluation .  Prepared by 
Michael Kumhof and Douglas Laxton, IMF Working Paper, WP/09/88, Research Department.  Viewed at:  
http://www.imf.org/external/pubs/ft/wp/2009/wp0988.pdf 
4 The Ministry of Finance provides information on spending decisions in the framework of the surplus 
policy at:  http://www.hacienda.gov.cl/ ministerio/presupuesto.php WT/TPR/S/220 Trade Policy Review 
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  2003 2004 2005 2006 2007 2008 2009 Ia 
Estimated benefits 5.3 4.9 4.6 4.3 4.2 4.5 1.2 
Other 0.2 0.1 0.0 0.0 0.0 0.2 0.1 
Gross operating balance 2.8 5.2 7.7 10.7 12.0 9.0 0.3 
Net acquisition of non-financial assets 3.2 3.1 3.1 3.0 3.2 3.8 1.0 
Investment 2.0 1.8 1.8 1.8 2.1 2.3 0.6 
Capital transfers 1.3 1.3 1.3 1.3 1.1 1.5 0.5 
Total revenue 20.7 22.0 23.8 25.9 27.5 26.1 5.2 
Total expenditure 21.2 19.9 19.3 18.2 18.7 20.9 5.9 
Net lending/net borrowing -0.5 2.1 4.6 7.7 8.8 5.2 -0.7 
Memo items:          
Total public debt (US$ million) 11, 091.2 11,120.9 9, 371.2 7,666.4 7, 094.0 7,335.0 n.a. 
Internal debt 6,389.4 6,171.9 5,138.5 3,495.2 3,437.9 4,400.0 n.a. 
External debt 4,701.9 4,949.0 4,232.7 4,171.2 3,656.2 2,934.9 n.a. 
Total public debt as a percentage of  GDP 13.0 10.7 7.3 5.3 4.1 5.2 n.a. 
n.a. Not available. 
a First quarter. 
Source : Ministry of Finance. 
18. As a result of the consolidation of trade liber alization, fiscal revenue from taxes on foreign 
trade, excluding VAT, decreased as a percentage of total tax revenue during the period under review, 
from 3.9 per cent of the total in 2003 to some 1.9 per cent in 2008.  
19. Up to 2006, Chile maintained a Copper St abilization Fund.  By means of the Fiscal 
Accountability Law (Law 20.128 of 2006), Chile modified its policy on management of the savings 
generated by implementation of the st ructural balance rule, creating the Fondo de Reserva de 
Pensiones  – FRP (Pension Reserve Fund) and the Fondo de Estabilizac ión Económica y Social  – 
FEES (Economic and Social Stabilization Fund).  The resources of the two funds, which are managed 
by the Central Bank, are invested abroad, solely in relatively low-risk assets.   
20. The FEES, which absorbed the balance of the former Copper Stabilization Fund, makes it 
possible to finance any fiscal deficits and to amor tize the public debt, thereby cushioning the effect on 
fiscal expenditure of the volatility of reve nue from taxes, copper, and other sources.5  Each year the 
FEES receives the positive balance that remains after deducting contributions to the FRP and to the 
Central Bank of Chile from the actual fiscal surplu s, discounting, where appropriate, public debt 
amortizations and early contributions made in the previous year.  The objective of the FRP is to support the financing of fiscal obligations deriving from the State guarantee of basic old age and invalidity social pensions, as well as the estimated so cial contributions.  The FRP increases each year 
by a minimum amount equivalent to 0.2 per cent of the previous year's GDP.  If the actual fiscal 
surplus is higher than 0.2 per cent of GDP, the FRP receives a contribution equivalent to that surplus, 
up to a maximum of 0.5 per cent of GDP.
6  
21. From its inception on 6 March 2007 to Febr uary 2009, the FEES received contributions 
totalling US$18.1 billion.  In February 2009 its  value was US$19.334 billion.  The financial 
investments made during that period generated a dditional resources amounting to US$1.234 billion.  
                                                      
5 The FEES was established in March 2007, with an  initial contribution of US$2.580 billion, of which 
US$2.563.7 billion represented the balance of the former Copper Revenue Stabilization Fund.  Online 
information from the Ministry of Finan ce, viewed at:  http ://www.hacienda.gov.cl/ 
fondos_soberanos/fondo_de_estab ilizacion_economica_ y_social.php 
6 The FRP was established in Decem ber 2006, with an initial contribu tion of US$604.5 million.  Online 
information from the Ministry of Finan ce, viewed at:  http ://www.hacienda.gov.cl/ 
fondos_soberanos/fondo_de_reserva_de_pensiones.php Chile WT/TPR/S/220 
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Since its establishment on 28 December 2006, the FRP has received contributions totalling 
US$2.250 billion.  Its value as of February 2009 was US$2.398 billion. 
22. The Chilean public debt contracted significantly during the period under review, from 
US$11.0912 billion in 2003 (13.0 per cent of GDP) to US$7.335 billion in 2008 (5.2 per cent of 
GDP).  Between 2003 and 2007, the debt continued on a downward trend;  however, it underwent a 
slight increase in 2008.  Chile's public sector h as shown a creditor position since 2006 because in that 
year its assets exceeded the public debt.  The policy of using accumulated surpluses to prepay the debt 
and accumulate external assets is continuing.  Chile is one of the few countries in Latin America with 
an investment-grade public debt.  In February 2009, Moody's raised Chile's sovereign risk from A2 to 
A1, with a positive outlook. 
(iii) Monetary and exchange policy 
23. The monetary policy of the Central Bank of Chile (BCCh) is aimed primarily at keeping 
inflation low, stable, and sustainable over time.  In  order to meet this objective, the BCCh has adopted 
an inflation-targeting monetary regime characterized  by the setting of an explicit numerical inflation 
target to be achieved over a particular time horiz on.  Meeting that target takes precedence over any 
other policy objective.  The BCCh implements its mone tary policy by identifying a target level for the 
nominal interbank interest rate, know n as the monetary policy rate (MPR).  In order to ensure that the 
interbank rate is at the desired level, the BCCh re gulates the liquidity (or reserves) of the financial 
system, using several instruments: open-market operations, purchase and sale of short-term notes, and credit lines and cash deposits (extended facilities) .  The BCCh does not use reserve requirements on 
deposits as an active monetary policy instrument. 
24. The Central Bank's explicit objective since 2007 h as been to keep the consumer price index 
(CPI) annual inflation rate at around 3 per cent, with a tolerance range of plus or minus 1 percentage 
point.  This objective must be met within a two-year horizon.  The authorities believe that the chief merit of the inflation-targeting regime is that it allows stabilization policies to be carried out by 
having a strong effect on inflationary expectations .  The BCCh believes that gearing monetary policy 
towards achievement of the inflation target help s to moderate fluctua tions in employment and 
domestic production.
7  A recent study concluded that the in flation-targeting system has had positive 
results for Chile by helping to contain inflation at  low and sustainable levels, giving monetary policy a 
high degree of credibility, and helping to contain the increase in long-term nominal interest rates.8 
25. During the period under review, monetary policy was conducted in three main phases:  an 
accommodative phase between 2003 and 2004;  a phase in which an increasingly tighter monetary 
policy was applied, between 2005 and 2008;  and a phase of rapid easing of monetary policy in 2009.  
In order to counteract the effects of the internati onal financial crisis on the level of activity of the 
Chilean economy, and having succeeded in bringi ng down inflation (see below), the BCCh conducted 
an aggressive easy money policy during the first half  of 2009, which has had the effect of bringing 
down the MPR from 8.25 per cent in December 2008 to 0.75 per cent in May 2009. 
26. Market interest rates increased substantially between 2007 and 2008, th en fell in 2009.  The 
average spread between interest rates on loans a nd on deposits has varied between 2.5 per cent and 
                                                      
7 Central Bank of Chile (2009), Monetary Policy Report , May 2009.  Viewed at:  
http://www.bcentral.cl/publicaciones/politicas/pdf/ipm052009.pdf 
8 Rodrigo Valdés, Inflation Targeting in Chile: Experience and Selected Issues , Central Bank of Chile, 
Economic Policy Documents, No. 22, November 2007.  Viewed at:  http://www.bcentral.cl/estudios/docume ntos-politica-economica/pdf/dpe22.pdf WT/TPR/S/220 Trade Policy Review 
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8.2 per cent since 2003 (Table I.4).  In 2009, despite a substantial decline in lending rates, the spread 
has remained high.9 
27. The Central Bank succeeded in keeping inflatio n rates at low levels between 2003 and 2007, 
with average inflation levels between 1.1 per cent in  2004 and 4.4 per cent in 2007.  However, largely 
because of the increase in prices of petroleum and ot her raw materials, inflation began to rise in the 
second half of 2007 and reached a peak level of 9.9 per cent in October 2008, well above the inflation 
target that had been set.  According to the IMF, th e impact of inflation was greater in Chile than in 
other countries because foodstuffs and fuel represent a larger share of the CPI in Chile (27 and 
4 per cent, respectively) than in other countries, an d the lack of subsidies means that prices of these 
goods have a high pass-through effect on domestic prices.10 
Table I.4 
Key monetary indicators, 2003-2009 
(Percentage) 
  2003 2004 2005 2006 2007 2008 2009a 
Money and credit supply (12-month rate of change)          
Base money  17.1 4.5 20.2 23.0 13.9 9.5 12.4 
Money in circulation 6.5 15.3 15.8 14.1 12.9 12.4 11.2 
M1 14.7 20.5 18.1 19.1 18.6 6.7 13.2 
M2 24.1 11.9 21.5 11.2 11.4 17.5 18.7 
M3 7.6 8.9 2.8 -3.4 12.3 10.6 14.3 
Interest rates (end of period)          
Commercial credits, 30-89 days 5.68 5.44 7.99 7.78 9.75 16.47 8.70 
Commercial deposits, 30-89 days 2.52 2.76 5.40 5.28 6.48 8.28 1.68 
Interest spread between credits and depos its, 30-89 days 3.16 2.68 2.59 2.50 3.27 8.19 7.02 
Monetary policy rate 2.25 2.25 4.50 5.25 6.00 8.25 1.25 
Inflation         
Consumer price index (average annual)   2.8 1.1 3.1 3.4 4.4 8.7 .. 
Consumer price index (December-December) 1.1 2.4 3.7 2.6 7.8 7.1 4.5 
Exchange rate         
Exchange rate (period average, Ch$/$US) 602.9 576.2 514.3 527.6 499.3 649.3 592.9 
Multilateral nominal exchange rate  111.4 111.1 97.5 104. 1 103.6 126.1 112.2 
Real exchange rate (1986=100) 95.4 98.0 86.6 93.4 91.9 107.0 95.3 
Real rate change (end of period)b -4.7 2.7 -11.6 7.8 -1.6 16.5 -9.8 
Note: The multilateral exchange rate index (MER) represents a meas ure of the nominal value of the peso against a broad basket o f 
currencies.  The observed real exchange ra te (OER) is defined as the observed nomina l exchange rate multiplied by the quotient 
between relevant external inflation and the CPI. 
a Data to April 2009. 
b A negative sign implies a real appreciation. 
.. Not applicable. 
Source : Central Bank of Chile. 
28. In response to higher inflation levels, the BCCh tightened its monetary policy between 2007 
and the end of 2008, relaxing it in the early months of  2009.  In first few months of 2009, inflation fell 
rapidly as a result of the slowdown in economic growth, spare capacity, and the drop in prices of commodities, especially petroleum and petroleum pr oducts.  Thus, the annual change in the PCI fell 
to 4.5 per cent in April 2009. 
                                                     
 
9 Central Bank of Chile (2009), Monetary Policy Report , May 2009.  Viewed at:  
http://www.bcentral.cl/publicaciones/politicas/pdf/ipm052009.pdf 
10 IMF (2008), Chile:  2008 Article IV Consultation – Staff Report;  Staff Statement;  Public 
Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Chile .  IMF 
Country Report No. 08/240, Washington, D.C., July 2008 .  Viewed at:  http://www.im f.org/external/pubs/ft/scr/ 
2008/cr08240.pdf Chile WT/TPR/S/220 
 Page 9 
 
 
29. Chile maintains a floating exchange rate syst em.  On an exceptional basis, the BCCh may 
intervene in the exchange mark et in situations of high volatility and uncertainty, but such 
interventions must be consistent with the infl ation target and the time-frames and amounts involved 
must also be explicitly defined.  The interventions  must also be announced in advance and sterilized 
in order to preserve the independence of monetary policy.  The nominal exchange rate appreciated 
substantially between 2003 and the beginning of 2008,  leading to a certain appreciation of the real 
exchange rate (Table I.4).11  The BCCh intervened in the ex change market between April and 
September 2008 as part of a policy of building up reserves in order to cushion adverse external 
scenarios or tight credit situati ons in international markets. 
(iv) Balance of payments 
30. Chile's balance-of-payments current account posted a surplus between 2004 and 2007, mainly 
as a result of increased exports, especially of copper (Table I.5).  The surpluses seen in 2006 and 2007 
were particularly high, representing 4.9 and 4.4 per cent of GDP, respectively.  In 2008, there was a 
sharp decline in the current account balance, largel y because of the drop in copper prices and the rise 
in imports.  In the first quarter of 2009, however, the current account posted a surplus, mainly as a 
result of a contraction in imports (Table I.5). 
31. Between 2005 and 2007, Chile's merchandise trad e balance showed a growing surplus, due 
mainly to the higher value of copper exports as a result of higher international prices for copper.  
Reflecting the positive growth of GDP and the real  appreciation of the peso, merchandise imports 
grew rapidly, more than tripling between 2003 and 2008.  In 2009, however, imports fell, reflecting 
the contraction in economic activity.  Exports tripled between 2003 and 2007, then suffered a 
contraction in 2008, attributable in part to lower copper prices.  The trade balance in services, which 
has traditionally shown a deficit, posted a surplus in the first quarter of 2009. 
Table I.5 
Balance of payments, 2003-2009 
(US$ million) 
 2003 2004 2005 2006 2007 2008 2009a 
I. Current account -778.7 2,074.5 1,449.0 7,154. 3 7,188.6 -3 ,439.6 639.3 
A. Goods and services 3,105.0 8,839.2 10,153.2 22,148.9 22,660.2 8,199.6 2,497.6 
Goods 3,722.8 9,585.2 10,774.7 22,780.4 23,635.0 8,845.8 2,351.5 
  Exports 21,664.2 32,520.4 41,266.9 58,680.1 67,665.7 66,455.5 11,274.2 
  Imports -17,941.3 -22,935.1 -30,492.3 -35,899.8 -44,030.7 -57,609.5 -8,922.7 
Services -617.9 -745.8 -621.5 -631.3 -974.9 -646.2 146.1 
  Credits 5,069.5 6,033.8 7,134.0 7,830.4 8,951.9 10,754.5 2,454.3 
  Debits -5,687.5 -6,779.6 -7,755.5 -8,461.9 -9,926.8 -11,400.6 -2,308.1 
B. Income -4,488.6 -7,836.6 -10.487,0 -18,401.0 -18,594.5 -14,562.9 -2,173.6 
Remuneration of employees -3.5 -3.6 -3.2 -3.2 -3.2 -3.2 -0.8 
Income from direct investment -3,959.3 -7,279.7 -10,353.3 -18,772.9 -20,071.4 -15,764.5 -2,255.9 
Income from portfolio investment -367.8 -546.4 -167.2 229.3 1,140.1 1,022.9 158.3 
Income from other investment -158.0 -7.1 36.6 145.7 339.8 181.8 -75.2 
C. Current transfers 604.9 1,071.8 1,782.8 3,406.3 3, 123.0 2,923.9 315.3 
Credits 901.0 1,411.1 2,199.3 4,002.9 3,850.8 3,873.8 508.7 
Debits -296.1 -339.2 -416.2 -596.5 -727.8 -950.0 -193.4 
                                                      
11 In July 2008 the IMF estimated that the peso was undervalued by 0 to 10 per cent.  IMF (2008), 
Chile:  2008 Article IV Consultation – Staff Report;  Staff Statement;  Public Information Notice on the 
Executive Board Discussion;  and Statement by the Executive Director for Chile .  IMF Country Report 
No. 08/240, Washington, D.C., July 2008.  Viewed at:  http://www.imf.org/external/pubs/ft/scr/2008/ 
cr08240.pdf WT/TPR/S/220 Trade Policy Review 
Page 10 
 
 
 2003 2004 2005 2006 2007 2008 2009a 
II. Capital and financial account 1,511.1 -1,804.9 -124.8 -6,199.3 -5,767.6 5,565.6 636.8 
A. Capital account 0.0 5.1 41.3 13.3 15.7 3.1 0.9 
B. Financial account 1,511.1 -1,810.0 -166.1 -6,212.5 -5,783.3 5,562.6 635.9 
Direct investment 2,701.1 5,609.5 4,801.1 4,555. 9 9,568.2 9, 895.6 1,311.5 
Abroad (assets) -1,606.3 -1,563.1 -2,182.7 -2,742.4 -3,009.1 -6,891.2 -2,193.3  
In Chile (liabilities) 4,307.5 7,172.7 6,983.8 7,298.4 125.77.2 16,786. 8 -3.504,8 
Portfolio investment -2,645.2 -3,308.4 -2,832.9 -9,238.5 -16,578.9 -9,543.4 224,9 
  Assets -4,698.9 -4,430.2 -4,227.2 -10,084.7 -16,070.8 -12,629.9 -971,6 
  Liabilities 2,053.7 1,121.8 1, 394.3 846.2 -508.0 3,086.3 1.196,4 
Financial derivatives 117.8 -84,0 -62.5 300.8 453.6 324.4 453,5 
Other investment 971.8 -4,218.0 -356.0 166.8 -2,440.1 11,330.3 -894,3 
Reserve assets 365.6 190.8 -1,715.7 -1,997.5 3,214.1 -6,444.2 459,6 
III. Errors and omissions -732.4 -269.5 -1,324.2 -955.0 -1,421. 2 -2,126.0 -1.276,1 
Memorandum items:              
Balance-of-payments position -365.6 -190.8 1,715.7 1,997.5 -3,214.1 6,444.2 459,6 
Current account as % of GDP 1.1 2.2 1.2 4.9 4.4 2.0 .. 
Average copper price (US$/pound) 0.81 1.30 1.67 3.05 3.23 3.16 2,28 
a First quarter. 
Source : Central Bank of Chile. 
32. Cumulative net inflows of foreign direct inv estment (FDI) between 2003 and 2008 were some 
US$37 billion, reaching a peak level in 2008 of nearly  US$9.9 billion.  As a result of the substantial 
amount of foreign investment in the Chilean econom y, remittances of profits have left a revenue 
balance that is deeply in deficit.   Remittances of profits were highe r than net FDI flows throughout the 
period under review. 
33. In December 2008, the public external debt  stood at US$2.935 billion, which is roughly 
equivalent to 5.2 per cent of GDP;  in 2003, the gross public external debt was US$4.702 billion, or 
some 13 per cent of GDP.  The gross private extern al debt in 2008 stood at some US$61.5 billion, 
compared with US$39.5 billion in 2003. 
(3) MERCHANDISE TRADE AND INVESTMENT FLOWS  
(i) Composition of trade 
34. Chile's exports consist mostly of prim ary products, including processed mining and 
agricultural products.  Partly as a result of higher c opper prices, the share of these primary products in 
total exports increased during the period under revi ew, from 80.4 per cent in 2003 to 86.8 per cent in 
2008.  Mining products accounted for more than 62 per cent of Chilean merchandise exports in 2008, 
in comparison with 41 per cent in 2003 (Table AI.1).   Total exports of coppe r ore and refined copper 
represented 54 per cent of Chilean exports in 200 8, well above the 36.2 per cent seen in 2003.  
Agricultural products represented 23.3 per cent of Ch ilean exports in 2008, a smaller proportion than 
the 37.2 per cent recorded in 2003.  Agricultural e xports consist mainly of wine, fruit, fish, and 
agricultural raw materials, in particular forestry products. 
35. The nominal value of Chilean imports incr eased by 225 per cent between 2003 and 2008.  
The composition of imports also shifted during the period under review, mainly because of the 
increased share of fuel in total imports, which went from 19.1 per cent in 2003 to 29.7 per cent in 
2008.  This caused a relative incr ease in the share of fuel at the expense of other categories 
(Table AI.2).  On the other hand, the share of manufacturing imports decreased, from 69.7 per cent in 
2003 to 60.4 per cent in 2008.  Within these, th e main category continued to be machinery and 
transport equipment, with 30.4 per cent of imports  in 2008, compared with 34.1 per cent in 2003. Chile WT/TPR/S/220 
 Page 11 
 
 
(ii) Direction of trade 
36. Chile's main export market in 2008 continued to be the European Union, which absorbed 
24.4 per cent of its exports, a figure similar to the 24 .5 per cent recorded in 2003 (Table AI.3).  The 
share of exports to the United States fell from 17.8 per cent in 2003 to 11.4 per cent in 2008, while 
Japan's share declined from 12 per cent in 2003 to 10.8 per cent in 2008.  The share of other Asian 
countries in Chile's exports increased from 20.1 per cent in 2003 to 29.4 per cent in 2008, mainly 
owing to an increase of more than 5 percentage points in exports to China, which accounted for 
14.7 per cent.  The share of exports to other c ountries in the Americas rema ined relatively stable 
during the period under review, going from 21.6 per cent in 2003 to 21.3 per cent in 2008.  Among 
the major markets, the share of exports to Mexico  decreased, while the share of exports to Brazil 
increased. 
37. Chile's largest supplier in 2008 was the United St ates, with 19.4 per cent of the total, followed 
by the European Union, China, and Argentina (Table AI.4).  While the share of imports from the 
United States increased substantially between 2003 a nd 2008, Argentina's share shrank by more than 
12 percentage points, to less than 9 per cent in 200 8.  China's imports increased substantially, from 
7.4 per cent of the total in 2003 to 12 per cent in 2008.  
38. Trade with countries with which Chile had prefer ential trade or partial scope agreements in 
force (as at May 2008) continued to increase during the period under review and represented 
90 per cent of exports and 95 per cent of imports in 2008, in comparison with the 49 per cent and 
59 per cent, respectively, note d in the previous review. 
(iii) Trade in services 
39. Chile has a relatively stable deficit balance in trade in services (Table AI.5).  The deficit is 
particularly high for the "Other services" category, which includes professional services, financial services, and insurance. 
(iv) Foreign direct investment 
40. Chile continued to receive strong foreign inv estment flows during the period under review;  
these flows have galvanized economic growth and fore ign trade.  According to data provided by the 
Foreign Investment Committee, the accumulated in flow of foreign investment capital between 2003 
and 2008 amounted to US$17,455 billion, of which 29.9 per cent went to the electricity, gas and water 
sector, 29.3 per cent to the mining sector, and 15 per cent to communications (Table AI.6). 
41. The main source countries for investment cap ital flows into Chile between 2003 and 2008 
were Canada (28.6 per cent), Spain (28.1 per cen t), the United States (9.7 per cent), and Mexico 
(6.3 per cent) (Table AI.7). 
(4) O
UTLOOK  
42. The authorities believe that Chile is enmeshed in the most adverse global scenario of the 
post-war era, and that the terms of trade will worsen  by 13.5 per cent in 2009,  after falling 15 per cent 
in 2008.  However, the authorities consider that Chile 's capacity to mitigate the cycle is substantially 
greater than during previous episodes,  given that the world crisis is being faced with a sound financial 
system, appropriate regulation, large accumulated external savings, and a fiscal policy based on clear WT/TPR/S/220 Trade Policy Review 
Page 12 
 
 
and stable rules.12  The Central Bank expects a range of GDP variation between -0.75 per cent and 
0.25 per cent for 2009, owing in particular to a sharp contraction in domestic demand of around 
4.7 per cent.  Exports and imports of goods and services are expected to shrink 1.7 per cent and 10.6 per cent, respectively, and a current account deficit equivalent to 1.8 per cent of GDP is 
anticipated.  Average inflation should drop to 2.3 per cent and then remain fixed at 1.5 per cent in 
2010.
13 
43. The IMF on the other hand projects a real GDP growth rate of 0.1 per cent in 2009, which 
should accelerate to around 3 per cent in 2010.  The estimated increase in the CPI is 2.9 per cent for 
2009 and 3.5 per cent for 2010.14 
                                                      
12 Central Bank of Chile, Monetary Policy Report , May 2009, p. 46.  Viewed at:  
http://www.bcentral.cl/publicaciones/politicas/pdf/ipm052009.pdf 
13 Central Bank of Chile (2009), Monetary Policy Report , May 2009.  Viewed at:  
http://www.bcentral.cl/publicaciones/politicas/pdf/ipm052009.pdf 
14 Online information from the IMF.  Viewed a t:  http://www.imf.org/exte rnal/country/CHL/index.htm