Chapter

CHILE

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: July 27, 1977.
Exchange Arrangement
CurrencyThe currency of Chile is the Chilean peso.
Exchange rate structure
UnitaryThere are two foreign exchange markets, but the exchange rate prevailing in both markets is the same: (1) the official market, through which all current payments and authorized capital transactions, including loan receipts, must be transacted; and (2) the informal market, through which all transactions not required to be channeled through the formal market take place. The official foreign exchange market consists of commercial banks and exchange houses licensed by the Central Bank of Chile (CBC).
Classification
Independently floatingIn both exchange markets, economic agents are free to negotiate rates; the CBC conducted transactions in the official exchange market within margins of ±8% around the reference rate and, as of December 1998, both limits of the band were to be widened by a factor of 0.0135% a day. On September 2, 1999, the central bank suspended the crawling band and allowed the peso to float. Thus, the exchange rate arrangement was reclassified to the category independently floating from the category crawling band.
Exchange taxNo.
Exchange subsidyThe CBC provides a subsidy (in the form of notes indexed to inflation with a minimum maturity of six years and an interest rate of 3%) on the following service payments on some debts contracted before August 6, 1982 (the original amount of the debt was about US$8 billion): (1) payments to Chilean banks or financial companies whose debt is indexed to the official exchange rate, and (2) payments abroad on debt obligations registered with the CBC. The subsidized rate is the official reference rate.
Forward exchange marketFree access is given for the purchase of dollars through forward contracts in the forward exchange market. Banks inform the CBC daily about their domestic operations and monthly about their operations abroad.
Arrangements for Payments and Receipts
Prescription of currency requirementsCurrencies listed in the Compendium of International Foreign Exchange Regulations are permitted, while operations with other currencies require a special authorization from the CBC.
Payment arrangements
Regional arrangementsSettlements between Chile and the other LAIA countries are made through accounts maintained with each other by the CBC and the central banks of each of the countries concerned within the framework of the multilateral clearing system of the LAIA.
Clearing agreementsYes.
Administration of controlExchange market regulations and their administration are the responsibility of the CBC.
International security restrictionsNo.
Payment arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on domestic ownership and/or tradeMonetary gold may be traded only by authorized dealers, but ordinary transactions in gold between private individuals are unrestricted.
Controls on external tradeTrade is unrestricted, subject to normal export and import formalities, including registration with the CBC.
Controls on exports and imports of banknotesNo.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyBoth natural and juridical persons may hold foreign currency checking accounts. The average balance is subject to legal reserve requirements. Juridical persons must take into account legal restrictions on investments, given their commercial activities (i.e., pension funds administrators). In the case of checking accounts, the commercial banks must certify the domicile reported.
Held abroadJuridical persons subject to regulations on investment abroad (i.e., banks and pension funds) must abide by such regulations.
Accounts in domestic currency convertible into foreign currencyNo.
Nonresident Accounts
Foreign exchange accounts permittedChecking accounts may not be held by nonresidents because holders must be domiciled in the country.
Domestic currency accountsNo.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsThere is a period during which foreign exchange may be bought in the formal market after the obligation’s expiration date has been documented on the import report. On December 9, 1999, this period was extended to 360 days from 90 days.
Documentation requirements for release of foreign exchange for importsForeign exchange can be bought on both the official and the informal market. However, if payments are made through the official foreign exchange market, they require an import report issued by the CBC, which must be obtained from, and processed through, the intermediary of a local commercial bank.
Domiciliation requirementsOnly resident natural or juridical persons may engage in import activities.
Preshipment inspectionThe CBC may reject the import report if prices are not market prices.
Import licenses and other nontariff measuresAll imports above $3,000 require an import report issued by the CBC. Imports of wheat, maize, edible oil, and sugar are subject to after-duty price margin limits. Antidumping and countervailing duty laws are applied.
Negative listImports of used motor vehicles are restricted.
Import taxes and/or tariffsStarting from January 1, 1999, the uniform tariff was reduced by 1 percentage point a year so as to reduce it to 6% from 10% by 2003. Imports are subject to a uniform 9% tariff rate with a few exceptions (including on imports from LAIA countries and under a number of bilateral trade agreements).
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsGenerally, export receipts do not have to be brought back into the country; however, the exporter should inform the CBC on the use of the proceeds. A share of receipts from copper exports of CODELCO (state copper company) must be deposited in the account of the Copper Stabilization Fund at the CBC; withdrawals are permitted only under prescribed circumstances.
Financing requirementsExports may be financed with advances from foreign buyers or with external or internal credits, as agreed between the trading parties. Until July 12, 1999, when this requirement was eliminated, such advances had to be channeled through the formal exchange market. Credits must be identified with shipments and paid immediately after proceeds are received.
Documentation requirementsThe exporter must submit an export report to the CBC through a banking company, establishing the exporter’s identity and the terms of the operation.
Letters of creditThe commercial bank that receives the letter prior to payment of the foreign exchange will demand from the exporter the shipping documents of the merchandise and the additional requirements established in the LC.
DomiciliationYes.
Preshipment inspectionInspections are done by customs agents, who perform the role of “customs ministers of faith”; subsequently, a shipment order is issued, which is subject to customs control.
Export licensesNo.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfers
Investment-related paymentsThere are no controls on the transfer of interest payments.
Prior approvalTransfers of profits require the authorization of the CBC for access to the formal market. In the case of loans, the purchase of currency for amortization must be made in the formal exchange market, subject to prior approval by the CBC, within a period either before the expiration date that appears in the loan repayment program or 10 days after the expiration date.



In the case of capital repatriation, which may only be done after complying with the minimum one-year holding period, permission must be obtained from the CBC for access to the formal exchange market.
Credit card use abroadThe CBC authorizes the commercial banks to issue credit cards. Card users must pay balances due for purchases abroad with their own resources. However, under the concept of extraordinary expenditures, each person may acquire foreign exchange in the formal market without declaring the purpose.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirementsProceeds from selected transactions (e.g., royalties and copyright fees, commissions, proceeds from insurance, and other benefits related to foreign trade) are subject to a 100% surrender requirement.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsNonresidents may invest in domestic securities in three ways:



(1) Through acquisition by foreign investment funds (FICE). These are formed by foreign capital and administered by an open society established in Chile. Investments may not exceed 5% of social capital in any one company and 10% of the funds’ total assets. These funds may not invest more than 40% of their portfolios in equities of the same holding period, and all FICEs as a group may not hold more than 25% of the equities of the same open society. Other requirements for FICEs are a five-year minimum holding period, a profit tax of 10%, and some portfolio restrictions that vary with the duration of the holding period;



(2) Through a financial investment (purchase of fixed-income securities and equities). These are, however, subject to a minimum holding period requirement of one year and to the general income tax law. Equities that have American Depository Receipts (ADRs) may be acquired in the country and converted into ADRs. The issuance of primary ADRs is exempt from the above restrictions, but the issuers are subject to minimum international rating requirements. Holders of ADRs are permitted to participate in preferential share offerings, changing shares thus acquired into ADRs; and



(3) Through loans. These may also be used to finance the purchase of securities in the country. They are subject to a 4% tax on interest payments, and a 1.2% stamp duty.
Sale or issue locally by nonresidentsProceeds from the sale of domestic securities by nonresidents are subject to the one-year holding period requirement if the capital inflow entered as a financial investment. The sale of equities that are the property of foreigners due to the ADR mechanism is possible, since Chilean ADRs can be converted into domestic stock. However, the resources obtained through the sale must be repatriated. ADRs issued from equities directly acquired in the Chilean stock market (also called secondary ADRs) are tightly restricted, both for the authorized period for acquiring stocks domestically and for the authorized period for acquiring foreign exchange after a local stock sale. Issuance of foreign securities by nonresidents is subject to the same procedures applied to domestic securities. In practice, no foreign securities are traded domestically. Once the respective taxes have been paid, profits may be transferred freely without delay.
Purchase abroad by residentsExcept for banks and pension funds, there are no controls on the acquisition of international fixed-income assets and current account deposits. Pension funds are authorized to hold up to 16% of their funds in foreign assets, including up to 10% in variable-income assets.
Sale or issue abroad by residentsResidents may issue equities and bonds abroad, and the associated foreign exchange operations must be effected through the formal exchange market. Equities may be sold according to the rules that regulate capital inflows through the mechanism of ADRs. Primary ADR issues are only subject to a minimum international risk-rating requirement for long-term debt of BBB—for banks and financial institutions.
Bonds or other debt securities
Purchase locally by nonresidentsSuch investments must be authorized by, and registered with, the CBC. Currency must be brought in and sold in the formal exchange market. A minimum holding period of one year is required.
Sale or issue locally by nonresidentsThese operations are not permitted.
Purchase abroad by residentsResidents may acquire bonds or other investment instruments abroad. However, the foreign exchange must be purchased in the formal exchange market and transferred abroad through the same market after informing the CBC. In the case of pension fund managers (PFMs), insurance companies, mutual funds, and international investment funds, limits are applied with regard to instrument types and amounts.
Sale or issue abroad by residentsBanking firms or juridical persons registered with the Superintendency of Securities and Insurance may issue bonds, subject to prior authorization by the CBC. The long-term foreign debt instruments of the firms issuing them must have a minimum classification of BBB+. Banking firms or financial institutions must have a minimum classification of A/B (BBB+ in the case of subordinate bonds). The weighted average term of the bonds should not be less than two years. In the case of subordinate bonds, the term must not be less than five years. Effective April 15, 1999, for entities other than banks and financial firms, bond issues were permitted with terms of more than two years and less than four years, with a minimum BB classification being required. In the case of bond issues for terms of four years or longer, the minimum classification required is BB—(previously BB).
On money market instruments
Purchase locally by nonresidentsIn general, these acquisitions are authorized for nonresidents, but there are regulations governing the mode of inflow. The associated capital inflow liquidation and the subsequent repatriation of proceeds must be effected through the formal exchange market. Acquisitions through external loans are subject to a tax on interest of 4% and a stamp tax of 1.2%. Acquisitions through FICEs are subject to a minimum holding period of five years in addition to a 10% profit tax. In the case of financial investments, there is a minimum holding period of one year, and they are subject to the general income tax law.
Sale or issue locally by nonresidentsThese transactions are not authorized and neither is the promotion of these or other financial services from abroad. To operate in the domestic financial market, the company must be registered and established, and must have brought in capital for operational purposes. The legal mechanism used is the creation of a Chilean agency of the foreign corporation.
Purchase abroad by residentsThe acquisition of money market instruments by individuals and nonfinancial companies is not restricted.
Sale or issue abroad by residentsYes.
On collective investment securities
Purchase locally by nonresidentsThese purchases are considered financial investments subject to a minimum holding period of one year. Funds that enter Chile through an FICE are subject to a minimum holding period of five years.
Sale or issue locally by nonresidentsThese transactions are not permitted. To operate in the domestic financial market, the company must be registered and established, and must have brought in capital for operational purposes. Once this has occurred, the sales of collective investment securities are subject to the same domestic rules as any other investment, with no controls on the repatriation of profits.
Purchase abroad by residentsThere are no controls for nonfinancial agents. Pension funds are restricted by the type of fund (mainly to avoid leveraged and hedged funds), country risk, regulation, liquidity, experience of the fund, and participant’s concentration.
Sale or issue abroad by residentsIn practice, Chilean mutual funds (open funds) and investment funds (closed funds) are not offered directly abroad. To operate abroad, such funds must meet the existing regulations of the foreign country. Domestically issued instruments may be sold to nonresidents, but funds must be repatriated. These inflows are considered a financial investment subject to a one-year holding requirement. FICEs that come into Chile under foreign ownership may be sold and traded in the New York or the London stock exchanges. The capital committed by the FICE must remain invested in Chile for five years.
Controls on derivatives and other instrumentsOn April 27, 1999, the CBC authorized financial institutions to make foreign interest rate forwards, futures, and swaps in the local markets. Agents must inform the CBC.
Purchase locally by nonresidentsThe market is not well developed. Nonresidents may not participate in the formal market for currency derivatives, although they may conduct these transactions with nonbank institutions.
Sale or issue locally by nonresidentsTo operate, foreign agents must have resident status.
Purchase abroad by residentsThe CBC regulates derivative operations undertaken on external markets in foreign currencies, international interest rate commodities, and variable-return instruments. Speculative positions with derivatives abroad may be taken (banks may not take over-the-counter interest rate options), but the currency must be remitted and returned through the formal exchange market. Provisions relating to the hedging operations that banks may carry out are maintained, as well as those relating to derivative operations in variable return instruments. The latter may also be undertaken by nonbank financial institutions.
Sale or issue abroad by residentsDerivatives for currency and interest rates exist for operations with foreign agents in over-the-counter operations, with security dealers or brokers that are authorized by the foreign authorities, or with foreign banks. There is access to formal spot exchange markets for hedging purposes. Currency and interest rate options are allowed, except for banks. For residents, including banks, other derivative contracts (interest rates, currencies, and commodity prices) are permitted up to the amount of the underlying external asset or liability position that needs to be covered. However, these contracts cannot be effected on the formal market, except by banks and institutional investors.
Controls on credit operations
Commercial credits
By residents to nonresidentsAll types of nonfinancial agents (except pension funds and insurance companies) are allowed to engage in international trade lending, but these operations must be effected through the informal exchange market.
To residents from nonresidentsCommercial credits may be contracted with foreign banks and financial entities under a 4% tax on interest. Associated foreign exchange transactions must be effected through the formal exchange market.
Financial credits
By residents to nonresidentsOperations by insurance companies, pension funds, and institutional investors are restricted. Others must operate through the informal market. Access to the formal market is extended to all credits.
To residents from nonresidentsFinancial credits may be contracted with foreign banks and financial entities, subject to a 4% tax on interest and a stamp tax of 1.2%. Under the CEIR, debtors may use the formal market to prepay credits or to maintain the resources in an account abroad as a guarantee to creditors.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsThese transactions are not allowed except for banks, which have to be authorized by the CBC. Only the following operations may be guaranteed or backed up by banks: external credits received by domestic enterprises, financial credits, the issuance of documents abroad, and forward contracts with authorized agents abroad.
To residents from nonresidentsYes.
Controls on direct investment
Outward direct investmentForeign exchange for investment may be bought both in the formal or the informal market, but the funds must be transferred through the former. If proceeds of such investments are brought back into the country, they have to be channeled through the formal market, but there is no surrender requirement. Investments by commercial banks are limited to a percentage of their effective capital and are subject to minimum international risk ratings.



The following transactions are permitted in the formal market: investments abroad, including acquisition of real or financial assets; and participation in companies and in contracts for the exploration and exploitation of domestic resources.
Inward direct investmentCapital contributions to new establishments or shares in existing ones are subject to a one-year minimum holding period and a minimum amount of US$1 million. Projects of significant size may be undertaken; there is a minimum holding period of one year, and the investor enjoys favorable taxation treatment with regard to the choice between the general income tax law or the guaranteed payment profit tax of 42%. There is also guaranteed access to the formal exchange market for repatriation.
Controls on liquidation of direct investmentInvestments must be held in Chile for at least one year to qualify for repatriation. After that period, it must be demonstrated that the assets were sold and applicable taxes paid.
Controls on real estate transactions
Purchase abroad by residentsInsurance companies may invest only 3% of their capital in noninhabitable urban real estate.
Purchase locally by nonresidentsPurchases are treated as a financial investment and are subject to a minimum investment requirement of US$100,000 and a minimum holding period of one year.
Sale locally by nonresidentsThe investment must have been held for one year in Chile, and it must be demonstrated that the asset was sold and applicable taxes paid.
Controls on personal capital movements
Loans
By residents to nonresidentsChilean regulations establish that both juridical and natural persons may lend abroad. However, the currency from such loans must be remitted through the formal exchange market. The CBC must be informed about such operations.
To residents from nonresidentsThe requirement that these loans be authorized by and registered with the CBC was eliminated on April 15, 1999.
Gifts, endowments, inheritances, and legaciesn.r.
Settlement of debts abroad by immigrantsTransfers may be made only through the informal market.
Transfer of assets
Transfer into the country by immigrantsThese operations are permitted but are subject to the same restrictions applicable to loans.
Provisions specific to commercial banks and other credit institutions
Maintenance of accounts abroadNonbank financial institutions are not allowed to maintain accounts abroad. Banks may hold foreign time deposits within the margin for financial investment abroad. External current accounts are not controlled.
Lending to nonresidents (financial or commercial credits)Banks may purchase debt instruments and sovereign bonds issued abroad. Time deposits are considered part of the margin for financial investments. Banks satisfying a capital adequacy ratio of at least 10% may acquire stocks of foreign banks or establish branches abroad. Deposits, loans, and other assets of Chilean banks with foreign banks of Chilean ownership may not exceed 40% of the capital and reserves of the foreign bank. Banks are authorized to extend loans to natural or juridical persons resident abroad in order to finance foreign trade operations between third countries.
Lending locally in foreign exchangeBanks may grant loans or acquire securities denominated or expressed in foreign exchange provided they remain within the open position limits.
Purchase of locally issued securities denominated in foreign exchangeThese purchases are subject to open position limits.
Differential treatment of deposit accounts in foreign exchange
Liquid asset requirementsYes.
Interest rate controlsBy law, there are ceilings on interest rates for both domestic and foreign currency loans. Those ceilings are defined as one-and-a-half times the average market interest rate.
Investment regulationsYes.
Abroad by banksEffective May 27, 1999, foreign financial investments by commercial banks are limited to 70% of each bank’s effective capital, and are restricted to bills and bonds issued or guaranteed by foreign governments or central banks and private enterprises. Effective December 9, 1999, the total exposure to any one country may not exceed 50% (previously 40%) of each bank’s effective capital. If the investment is made in one foreign financial institution, it may not exceed 30% of the domestic bank’s effective capital. The general minimum long-term international debt risk rating (and its equivalent for short-term debt) for the financial instruments is BBB-, and up to 20% may be invested in BB-instruments. The foreign exchange needed to invest abroad must be obtained in the formal exchange market. Investments require the prior authorization of the CBC.
In banks by nonresidentsNonresidents may invest in banks, but such investments are subject to a one-year holding period.
Open foreign exchange position limitsThe limit is 20% of capital and reserves. This margin includes derivative and spot instruments, foreign investment, and assets and liabilities issued abroad or denominated in foreign exchange. Additionally, there is a foreign financial investment ceiling of 40% of the capital and reserves of each bank, a maximum investment in subsidiaries and branches abroad of 20% of the capital and reserves of domestic banks, and a requirement that the balance of all acquisitions and sales of foreign exchange for a bank be positive.
On resident assets and liabilitiesYes.
On nonresident assets and liabilitiesYes.
Provisions specific to institutional investorsPension funds and insurance companies may hold only foreign instruments of a minimum international long-term risk rating requirement of BBB. These investors may also acquire foreign instruments guaranteed by the U.S. Treasury, such as Brady Bonds. Acquisition of equities and variable-income assets by pension funds is restricted to instruments in some international markets. Specifically, there are rules on the transparency, regulation, and information of the stock exchange where these instruments can be acquired. However, for insurance companies, the possible stock exchange options are wider; insurance companies may invest in markets where there is a daily average of at least US$10 million of equity transactions. Mutual funds may use the formal exchange market to make investments abroad.
Limits (max.) on portfolio invested abroadEffective January 28, 1999, pension funds are permitted to invest up to 16% of their resources (previously 12%). Variable income securities from any issuer should not exceed 10% of the fund. Insurance companies may invest 3% of their reserves and risk net worth. Life insurance companies may invest their technical reserves and their risk net worth with global limits of 15% in financial investments and 3% in real estate. The limits for general insurance companies differ from those of the life insurance companies only in the case of financial investment abroad. The limit for the former is 20%.
Currency-matching regulations on assets/liabilities compositionPension funds and insurance companies are only allowed to cover themselves against currency volatility up to a maximum of their foreign financial investments on a currency-by-currency basis.
Other controls imposed by securities lawsNo.
Changes During 1999
Exchange arrangementSeptember 2. The central bank suspended the crawling band and allowed the peso to float. Thus, the exchange rate arrangement was reclassified to the category independently floating from the category crawling band.
Imports and import paymentsJanuary 1. The tariff rate was reduced by 1 percentage point to 10%.



December 9. The period during which foreign exchange may be bought in the formal market was extended to 360 days from 90 days.
Exports and export proceedsJuly 12. The CBC allowed advances from foreign buyers or external credits to be channeled through the informal market.
Capital transactionsApril 15. For entities other than banks and financial firms, bond issues were permitted with terms of more than two years and less than four years, with a minimum BB classification being required. In the case of bond issues for terms of four years or longer, the minimum classification required is BB-.
Controls on derivatives and other instrumentsApril 27. The CBC authorized financial institutions (banks must inform the CBC) to make foreign interest rate forwards, futures, and swaps in the local market.
Controls on personal capital movementsApril 15. The requirement that loans by residents to nonresidents be authorized by the CBC was eliminated.
Provisions specific to commercial banks and other credit institutionsMay 27. Banks were allowed to have financial investments of up to 70% of their effective capital.



December 9. Banks were allowed to invest up to 50% of their effective capital in a single country.
Provisions specific to institutional investorsJanuary 28. The maximum amount of investment abroad allowed to pension funds was increased to 16% from 12% of the fund. For life insurance companies, the margin authorized for financial investments was widened to 15% from 10%. In the case of general insurance companies, the margin was increased to 20% from 15%.



April 15. The limit on investment in variable return instruments was increased to 10% from 8% of the fund.
Changes During 2000
Imports and import paymentsJanuary 1. The tariff rate was reduced by 1 percentage point to 9%.

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