Chile’s advanced communication and transportation infrastructure has helped it connect to international markets and bridge distances with other global business centers. A low-cost business-friendly environment, along with a high quality of life and a talented and educated work force, has attracted record levels of foreign direct investment (FDI).
According to the World Investment Report 2011 by the United Nations Conference on Trade and Development (UNCTAD), last year Chile was the world’s 19th largest recipient of FDI (up from 26th place in 2009). Internationally, FDI inflows grew by 5% to US$1.24 trillion in 2010, but in Chile US$15.1 billion poured into the country, representing a rise of 17% and confirming its status as one of the best places in the world to invest.
In December 2010, Standard & Poor’s upped the nation’s future to positive because its “strong financial profile, growing economic stability, and good growth prospects support the positive outlook”. Both Moody’s and Fitch also laud Chile’s resilient financial sector and share S&P’s confidence.
The government aims to use prudent financial planning to create opportunities for all. Minister of Finance Felipe Larrain says, “The goal we have set for this government is to grow 6% annually on average, create 200,000 jobs per year on average and defeat poverty, and thus lay the groundwork for Chile to become a developed country.”
FOR YEARS, THE CENTRAL BANK HAS FOLLOWED A VERY PRUDENT, AUSTERE FISCAL POLICY OF ‘YOU SPEND ONLY WHAT YOU HAVE’ AND PURSUED AN INFLATION TARGET OF BETWEEN 2% AND 4%
LAST YEAR, CHILEAN FINANCIAL GROUP LARRAIN VIAL BECAME CHILE’S FIRST BROKER-DEALER TO BE AUTHORIZED TO OPERATE IN THE U.S. AND WAS HAILED ‘THE MOST INNOVATIVE FINANCIAL FIRM IN LATIN AMERICA’
hile’s economic framework includes an independent central bank, whose monetary policy is carried out based on inflation targets and a flexible exchange rate. “For many years Chile has had a very prudent, even austere, fiscal policy: you spend only what you have,” says Jose de Gregorio, president of the Central Bank of Chile. “Chile stands for the strength of its institutions, rule of law, low corruption, and respect for private property rights, and legal issues are resolved in independent courts.”
In recent years, competition among banks has increased and a greater willingness to lend has brought more financing alternatives to the market. Also, Chile’s pioneering pension system – which has also increased sources of long-term financing for companies looking to expand – continues to attract attention from overseas.
Solange Bernstein, superintendent of pensions at the Chilean Pensions Supervisor (Superintendencia de Pensiones), says, “We receive delegations from China, African countries and even from Europe who are interested in the Chilean pension system, and its issues are brought up in the meetings of the OECD and other international forums.”
It is not only Chile’s pension scheme that is expanding abroad, but also the expertise of its financial institutions. In 2010, Larrain Vial
, a Chilean investment banking and securities brokerage firm with 77 years experience in its home market, became the first Chilean broker-dealer to be authorized to operate in the U.S. Last year the group was recognized by The Banker as the Most Innovative Financial Firm in Latin America, and was recently awarded the Best Investment Bank in Chile 2011 award by Global Finance.
“By any measure, Chile has a very large and very important capital market in relation to the economy,” says Fernando Jose Larrain, director of Larrain Vial. “For example, if we consider bancarization or financial penetration (defined as private credit as a percentage of GDP), it is 80% in Chile, in Peru 30%, and in Colombia 32%. Another measure is market capitalization relative to GDP. The Chilean market cap to GDP is almost 1.5 times, so we have a very large capital market relative to the size of the country, which is a very important fact.”
Headquartered in Santiago and with more than 700 employees in 10 offices across Chile, the company also offers brokerage, asset management and investment banking services to private, corporate and institutional clients in Peru, Bolivia, Brazil and Mexico.