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© 2010 International Monetary Fund

September 2010

IMF Country Report No. 10/298

Chile: 2010 Article IV Consultation—Staff Report; Staff Supplement; 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 2010 Article IV consultation with Chile, the following documents have been released and are included in this package:

  • The staff report for the 2010 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on July 30, 2010 with the officials of Chile on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on August 25, 2010. 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 supplement of August 25, 2010, updating information on recent developments

  • A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its September 13, 2010 discussion of the staff report that concluded the Article IV consultation.

  • A statement by the Executive Director for Chile.

The document listed below has been or will be separately released.

  • Selected Issues Paper

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

Copies of this report are available to the public from

International Monetary Fund • Publication Services

700 19th Street, N.W. • Washington, D.C. 20431

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Price: $18.00 a copy

International Monetary Fund

Washington, D.C.

Staff Report for the 2010 Article IV Consultation



Prepared by the Staff Representatives of the Western Hemisphere Department

(In consultation with other departments)

Approved by Miguel A. Savastano and Tamim Bayoumi

August 25, 2010

Executive Summary

Context. Since 2008, Chile’s economy has successfully withstood two large adverse shocks—the global financial crisis and a devastating earthquake in February 2010. The economy’s resilience has been underpinned by a strong policy framework, a well-capitalized banking system, and the absence of imbalances in the private sector. Real output growth is expected to recover strongly in 2010–11, driven by reconstruction spending and a rebuilding of inventories. In concluding the 2009 Article IV consultation, Directors strongly supported Chile’s policy framework and highlighted its track record of exemplary policies, but encouraged the authorities to consider extending the horizon for fiscal policy formulation.

Policy discussions. Staff supported the authorities’ intention to start withdrawing fiscal stimulus in 2011 even with higher spending on reconstruction and normalizing the stance of monetary policy. Staff agreed with the authorities’ decision to review the fiscal rule, with a view to enhancing its effectiveness, and their plans to develop further domestic financial markets and strengthen the prudential framework. The discussions also covered options to better align the fiscal rule with international best practice, policy responses to a possible surge in capital inflows and steps to increase productivity growth.

Analytical Work. Background studies include options for strengthening Chile’s fiscal framework, assessing the extent of “too-connected-to-fail” risk through network analysis, estimating potential output, and measuring the effects of terms of trade shocks on income distribution.

The 2010 Article IV consultation discussions were held in Santiago during July 19–30. The team comprised R. Rennhack (Head), D. Iakova, J. Chan-Lau, T. Daban, and N. Magud (all WHD). M. Ricaurte (OED) participated in the meetings. The mission met with Finance Minister Larraín Governor of the Central Bank of Chile De Gregorio, other senior officials and representatives of the private sector.

Exchange Rate System. Chile has accepted the obligations of Article VIII, Sections 2, 3, and 4 and maintains an exchange rate system free of restrictions on the making of payments and transfers for current international transactions, and a floating exchange rate.

OECD membership: Chile joined the OECD in May 2010.


  • I. Context

  • II. Outlook for 2010

  • III. Medium Term Outlook and Risks

  • IV. Policy Discussions

  • V. Staff Appraisal

  • Boxes

  • 1. Measuring Chile’s Output Gap

  • 2. Too-Connected-to-Fail (TCTF) Risk in the Chilean Banking System

  • 3. Bicentennial Capital Markets Reform (MKB)

  • Figures

  • 1. Domestic Demand and Net Exports

  • 2. Inflation, Labor Markets and Monetary Policy

  • 3. Fiscal Policy

  • 4. Financial Markets

  • 5. External Current Account

  • 6. Net IIP and Capital Flows

  • 7. Banking System Developments

  • 8. Equity Return Pairwise Correlation, Spanish and Chilean Banks

  • Tables

  • 1. Selected Social and Economic Indicators

  • 2. Summary Operations of the Central Government

  • 3. Summary Operations of the Public Sector

  • 4. Balance of Payments

  • 5. Medium-Term Framework

  • 6. Indicators of External Vulnerability

  • 7. External Debt and Debt Service

  • 8. Social and Demographic Indicators

  • Annexes

  • 1. Chile’s Fiscal Rule from an OECD Perspective

  • 2. Financial System Developments

  • 3. Debt Sustainability Analysis

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Prepared by the Western Hemisphere Department

August 25, 2010


  • 1. Fund Relations

  • 2. Statistical Issues Appendix

  • 3. World Bank—Fund Country-Level Work Program Under JMAP

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Public Information Notice (PIN) No. 10/136


September 29, 2010

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA

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September 13, 2010

Chile: 2010 Article IV Consultation-Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Chile
Author: International Monetary Fund