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© 2003 International Monetary Fund

September 2003

IMF Country Report No. 03/303

Chile: 2003 Article IV Consultation—Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Chile

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2003 Article IV consultation with Chile, the following documents have been released and are included in this package:

  • the staff report for the 2003 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on June 13, 2003, with die officials of Chile on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 25, 2003. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • a staff statement of August 18, 2003, updating information on recent developments.

  • a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its August, 18, 2003 discussion of the staff report that concluded the Article IV consultation.

  • a statement by the Executive Director for Chile.

The document(s) listed below have been or will be separately released.

Selected Issues

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to

Copies of this report are available to the public from

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Staff Report for the 2003 Article IV Consultation

Prepared by the Staff Representatives for the 2003 Consultation with Chile

Approved by Charles Collyns and Juha Kähkönen

July 25, 2003

  • Discussions. A staff team held discussions in Santiago during June 2–13. The team met with the ministers of finance and economy, the president of the central bank, other senior officials in the government, central bank, and supervisory agencies, and representatives of the private sector, labor, and the academic community.

  • Team. E. Kalter (Head), S. Phillips, M. Espinosa, R. Luzio, and M. Villafuerte (all WHD); and M. Singh (ICM). The team worked closely with a parallel fiscal ROSC mission, led by A. Cheasty (FAD). The Executive Director for Chile, Mr. Le Fort, attended many of the key meetings.

  • Previous consultation. At the conclusion of the 2002 consultation on July 19, 2002 (published as Country Report No. 02/155), Directors supported the macro policy framework and noted that strong fundamentals had allowed Chile to manage external shocks and pursue a credible countercyclical policy. They encouraged the authorities to press ahead with their “Pro-Growth Agenda” and recommended increased labor market flexibility. To enhance fiscal transparency, Directors suggested recapitalizing the central bank and widening coverage of statistics.

  • Effectiveness of Fund policy advice. Recognizing Chile’s sound policy record, Fund policy advice has focused on further enhancing the policy framework and on policy implementation issues. On fiscal policy, the focus has been on improving transparency, and the Chilean authorities have made considerable progress in this area, making use of Fund technical advice. The staff has generally supported the authorities’ approach on monetary policy. On reform issues, the dialogue has concentrated on strengthening financial supervision, streamlining the trade regime, and enhancing later market flexibility. There also has been a useful exchange of views on vulnerability analysis.

  • An accompanying Selected Issues volume includes staff papers on: the role of institutions; exports and growth; the domestic capital market; and monetary policy transmission. Shorter notes examine: the macropolicy framework; public sector finances; the external position and potential financing vulnerabilities; the state of the banking system and recent failure of a financial company; cases of distress among foreign-owned corporations; and development of financial benchmarks.

  • Chile has accepted the obligations of Article VIII and maintains an exchange system free of restrictions on current transactions. Chile participates in the New Arrangements to Borrow. Chile subscribes to the Fund’s Special Data Dissemination Standard, and its metadata are posted on the Fund’s Data Standards Bulletin Board. A statistics ROSC was completed for the 2001 consultation, and a fiscal ROSC for this consultation. An FSAP mission is planned for late 2003.


  • Executive Summary

  • I. Background

  • II. Recent Economic and Policy Developments

  • III. Economic Outlook

  • IV. Policy Discussions

    • A. Monetary and Exchange Rate Policy

    • B. Fiscal Policy

    • C. Financial Sector

    • D. Structural Policy Issues

    • E. External Sustainability and Vulnerability

    • F. Other Issues

  • V. Staff Appraisal

  • Boxes

  • 1. Integration to the World Economy and the Recent Trade Policy Strategy

  • 2. Labor Market Issues and Initiatives to Increase Flexibility

  • 3. Aspects and Implications of the Central Bank’s Balance Sheet

  • Annexes

  • I. Pro-Growth, Capital Markets and State Reform Agendas: Description and Status of Main Reforms

  • II. Developments in Fiscal Accounting and Statistics

  • Appendices

  • I. Fund Relations

  • II. Financial Relations with the World Bank

  • III. Statistical Issues

  • Figures

  • 1. Selected Economic Indicators, 1996–2003

  • 2. External Sector Indicators, 1996–2003

  • 3. Labor Market Indicators, 1996–2003

  • 4. Financial Sector Indicators, 1996–2003

  • Tables

  • 1. Selected Economic Indicators

  • 2. Selected Indicators of the Financial System

  • 3. Summary Operations of the Central Government

  • 4. Operations of Other Public Sector Entities

  • 5. Indicators of External Vulnerability

  • 6. Balance of Payments—Medium-Term Projections

  • 7. External Debt and Debt Service

  • 8. Public Sector Debt Sustainability Framework

  • 9. External Debt Sustainability Framework

Executive Summary

Recent developments

Chile’s sound macro-policy framework and strong fundamentals have largely insulated the country from the regional financial crisis and permitted continued growth. During 2001–02, the economy decelerated along with the world economy, but grew faster than most countries in the region as it enjoyed favorable access to external financing and was able to pursue countercyclical macro policies. Monetary policy was eased in 2002, with a view to keeping inflation from dropping below the target band. Automatic fiscal stabilizers were allowed to operate, as the authorities met their structural balance target.

Recent reform efforts have focused on ambitious measures to modernize the public administration, increase government transparency, and reinforce the financial system. The “Pro-Growth Agenda” defined in early 2002 has also advanced, and the authorities have further increased the transparency of macroeconomic policies and statistics.

Economic outlook

In the baseline scenario, GDP growth accelerates to 3⅓ percent this year and 4½ percent in 2004, as recovery of demand—prompted by improved regional confidence, better terms of trade and low real interest rates—takes up slack capacity. As the output gap closes over the medium term, the actual government balance would converge to the structural balance target, a surplus of 1 percent of GDP. Inflation would remain around 3 percent. The authorities indicated that they had a similar view of the outlook, emphasizing that performance over the next few years would depend substantially on global economic conditions.

Policy discussions

Staff supported the authorities’ macro-policy framework and targets:

  • The inflation targeting framework has anchored inflation expectations. The current monetary stance is well balanced.

  • Adherence to the structural fiscal balance target would provide adequate assurance of sustainability. Recent actions to raise taxes and reduce expenditure plans are appropriate to ensure that the fiscal objectives are achieved in 2003–04.

Staff commended the authorities’ recent actions to further increase the transparency and credibility of macro policies, including their plans to implement the GFSM 2001 standard. Staff encouraged the authorities’ interest in institutionalizing a fiscal policy rule and recapitalizing the central bank, which would help enhance fiscal transparency and credibility, while safeguarding confidence in monetary policy independence.

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August 18, 2003

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Public Information Notice (PIN) No. 03/103


August 20, 2003

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August 18, 2003