# **II. Overview of SME Programs in Chile**<sup>**2**</sup>

Chile invests US$400 to US$600 million annually in private sector support programs, ranging from loans and credit guarantees to matching grants for business support services to tax rebates for in-service worker training (World Bank 2004). These different programs cover all sectors of the economy, firm sizes and regions. In late 2001, the loan and credit programs totaled USD 643.5 million, of which the largest share (over 60 percent) was accounted for by a one-time debt restructuring program implemented by CORFO, the economic development agency of Chile, in response to an economic downturn. In that same year, the matching grant and training rebate programs totaled USD 328.7 million. The largest was the training rebate managed by SENCE, the national training authority under the Ministry of Labor, followed by the different business support programs managed by CORFO, the export promotion program of PROCHILE the national export promotion agency, and the innovation fund FONDEF managed by CONICYT, the national science and technology research council.

# **A. Matching Grants and Credit Programs for Industrial Enterprises**

The largest portfolio of matching grants and credit programs covering enterprises in the industrial sector – the focus of this study – is administered by CORFO (Corporación de Fomento de la Producción). Set up in 1939, CORFO’s mission is to advance economic development in Chile by promoting competitiveness and investments, contributing to the generation of jobs for skilled workers, and insuring equal access to services promoting business modernization. The design of CORFO’s programs is guided by considerations of market imperfections and demand. The first principle is that the State should only intervene when there are clear market failures. These include diseconomies of scale, imperfect information about markets and technology, barriers to inter-firm cooperation and limited access to finance, constraints that are especially pertinent to SMEs.<sup>3</sup> In addition, CORFO does not discriminate between economic sectors or geographical regions in the allocation of its resources. All programs should be demand driven, as demonstrated by private sector ownership and co-financing. Projects are funded on the basis of proposals by individual firms or groups of enterprises meeting transparent criteria, typically for two to three years to ensure that support is time-limited. Finally, CORFO outsources the delivery of many programs through public agencies, regional governments, public and private institutes and industry associations, though it directly manages the delivery of some innovation and regional programs through its network of field offices.

Within these guiding principles, CORFO has implemented several major grant and credit programs since the early 1990s to:

> 2 This overview of SME programs in Chile draws heavily upon World Bank (2004), “Chile:  A Strategy to Promote Innovative Small and Medium Enterprises”.

> 3 Chile defines SMEs using an inflation-indexed measure of annual sales or _unidad de fomento (UF)_ . The size cut-off  for “micro” is 2,500 UF (about US$55,000 in March 2004), “small” is 25,000 UF (about US$550,000), and “medium” is 100,000 UF (US$2.2 million).  For comparability with the other country studies, this paper uses an alternative employment-based definition of SMEs (see Section III).

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