2011 Article IV Consultation

Abstract

2011 Article IV Consultation

I. The Current Conjuncture

1. Chile’s economy has recovered rapidly from the global financial crisis and the February 2010 earthquake. Its resilience was underpinned by solid policy frameworks (including a fiscal rule, inflation targeting and exchange rate flexibility), a sound banking system and a strong policy response, facilitated by the existence of large fiscal buffers. Real GDP increased 5.2 percent in 2010, and the expansion continued in the first quarter of 2011.

2. Spare capacity in the economy has diminished and some constraints are emerging. Supportive macroeconomic policies and large reconstruction spending have boosted domestic demand growth to double digit levels (see figure). The unemployment rate has declined to a historically low level, although wage growth has remained moderate so far. The rapid growth of domestic demand has fueled import growth and the external current account surplus has narrowed, despite favorable terms of trade. While the nominal appreciation of the peso has helped moderate the rise in consumer prices, headline inflation moved above the 3 percent target in the first half of 2011, although core inflation remained contained.

A01ufig01

Real GDP and Domestic Demand

Citation: IMF Staff Country Reports 2011, 260; 10.5089/9781463902223.002.A001

3. Credit growth has strengthened. Credit conditions have eased significantly over the last twelve months for both firms and households, and credit growth has accelerated in line with the rising income. Commercial and mortgage bank loans grew by 9 percent in real terms year-on-year in May, and consumer loans increased by 13 percent. External borrowing by non-financial corporations has also increased significantly. Nonetheless, the ratios of corporate debt-to-GDP and household debt-to-disposable income remain broadly stable.

4. Withdrawal of the large crisis-related policy stimulus is under way.

  • Monetary policy. From mid-2010 to June 2011, the policy rate was raised from 0.5 percent to 5.25 percent and markets expect some further tightening in the remainder of the year. In January 2011, the central bank announced a daily schedule of foreign exchange purchases to increase its gross reserve by US$12 billion by year-end.

  • Fiscal policy. The structural fiscal deficit is projected to decline to 1.6 percent of GDP by end-2011 (½ percentage point lower than in 2010). Reflecting high copper prices, the headline fiscal balance is expected to post a surplus of 1.3 percent of GDP (from a deficit of 0.4 percent the previous year). The medium-term fiscal goal of the government is to reduce the structural fiscal deficit to 1 percent by 2014.

5. Despite a pickup in gross capital inflows, net capital inflows remain moderate. Higher portfolio investments abroad by domestic pension funds have largely offset rising gross portfolio inflows. In early 2011, however, large foreign borrowing by banks and corporate resulted in a sizable surplus in the financial account.

6. The real effective exchange rate continued its gradual appreciation, in line with improving fundamentals. In nominal terms, the peso appreciated 14 percent vis-à-vis the U.S. dollar in the year to May. In real effective terms, however, the appreciation was only 4 percent. The strengthening of the peso is consistent with improvement in the terms of trade and other fundamentals. Staff estimates, using CGER-type methodologies and sectoral analysis, suggest that the real effective exchange rate is broadly in line with equilibrium (Selected Issues Paper, Chapter 1).

7. The FSAP update concluded that the financial system was overall sound. Banks are well capitalized (with high quality of capital and low leverage), liquid, and highly profitable. Non-performing loans declined in 2010, and provision coverage increased. Despite the recent rise in external borrowing, banks’ reliance on foreign funding remains limited and there are no significant currency mismatches in the banking and corporate sectors.

II. Outlook and Risks

8. Looking ahead, rapid economic growth is likely to continue. Staff projects real GDP growth of about 6½ percent in 2011, slowing down to 5 percent in 2012. Large scale private and public construction spending is expected to sustain investment growth, while strong employment and wage growth would support consumption. The external current account balance is likely to deteriorate further as imports continue to grow faster than exports. CPI inflation is projected to increase in the second half of 2011 as spare capacity diminishes further, and then decline gradually towards the central bank target during 2012 as the effect of interest rate increases filters through.

9. In staff’s view, risks to the near-term outlook are tilted to the upside. While staff’s central scenario envisages that growth would slow down towards potential in the second half of 2011, the risk of overheating remains a concern. Domestic demand may grow faster than expected, driven by strong confidence and easy global financing conditions. Near-term risks to headline CPI inflation have diminished as commodity prices have moderated, however, core inflation may rise faster than anticipated given uncertainty about potential output growth and the size of the output gap. Downside risks are mainly related to the global outlook. An intensification of financial tensions in Europe, especially if they spill over to the United States, could drive up risk premia and reduce global liquidity. However, Chile’s economic activity would be most affected in the event of a sharp slowdown in China accompanied by a large decline in commodity prices—a relatively low probability scenario (Box 1).

Chile’s Trade Linkages

Chile’s exports have been increasingly dominated by commodity products. The share of copper exports in Chile’s total exports increased from 36 percent in 2003 to 57 percent in 2010. Copper exports increased from US$7.8 billion to US$40.3 billion over the same period, and the ratio of mineral exports proceeds to GDP increased from 11 to 20 percent.

China is Chile’s main export partner. Chile’s share of world copper exports almost doubled during 2003−10 to 44 percent. The top five markets for Chile’s copper exports (China, Japan, South Korea, the United States, and Italy) account for about two thirds of total copper exports, with China alone accounting for 35 percent. While the United States remains the main destination for Chile’s non-mining exports, its share has declined (from 51 percent to 41 percent for agricultural exports; and from 23 percent to 12 percent for industrial exports), China’s share has doubled over the same period.

The rising importance of China as a trade partner is reflected in the strong correlation between growth trends in Chile and China. The correlation of growth trends in the two countries (calculated using Vahid-Engle’s common cycles method) has been very high since the early 2000s. In contrast, Chile’s growth trend has recently decoupled from those of the US and Europe.

A01ufig02

Copper exports per geographical region

(in percent of total)

Citation: IMF Staff Country Reports 2011, 260; 10.5089/9781463902223.002.A001

A01ufig03

Chile, growth trend correlations with other countries

Citation: IMF Staff Country Reports 2011, 260; 10.5089/9781463902223.002.A001

10. The authorities agreed with staff’s characterization of the key risks, although they viewed them as broadly balanced. They expected that economic growth would moderate as higher interest rates start to affect domestic demand, and durable consumption and investment in machinery and equipment decline from the high post-earthquake levels. They also noted that risks of overheating would be mitigated by the increase in potential output brought about by the recent high rates of investment. In their view, upside risks to core inflation are limited since real wage increases have remained broadly in line with productivity growth so far.

III. Policy Challenges

Chile’s main near-term policy challenge is managing successfully the transition to a more sustainable growth path. The authorities remain committed to unwinding the crisis-related policy stimulus. Staff suggested taking advantage of the favorable economic conditions to withdraw fiscal stimulus and rebuild public sector assets faster than originally envisaged to help contain domestic demand growth and keep inflation close to the target. Raising productivity growth is the key long-term policy goal.

A. Containing Inflation Pressures

11. There was broad agreement that the output gap has closed and that capacity constraints are starting to emerge. Against this background, the central bank accelerated the pace of normalization of the policy rate in early 2011, which helped bring inflation expectations close to the 3-percent target. Staff and central bank officials agreed some further tightening may be needed in the coming months to ensure that domestic demand growth settles on a more sustainable path. The timing of any future changes in the policy rate, however, will depend on domestic and global economic developments, as well as on the pace of fiscal consolidation.

B. Withdrawing the Fiscal Stimulus

12. Staff argued that it would be appropriate to speed up the withdrawal of fiscal stimulus in the near term. Earlier this year, the government announced a reduction of public expenditure of about 0.3 percent of GDP, which would lower the structural fiscal deficit in 2011 to 1.6 percent of GDP, below budget plans. Staff welcomed this measure and suggested that the structural deficit could be reduced further through continued strict expenditure control in the remainder of 2011. For 2012, the last official projections (in the 2011 budget) implied a tightening of only ¼ percent of GDP, which is relatively modest given the strength of domestic demand. Staff argued that more ambitious fiscal consolidation in 2012 would help reduce overheating risks and contribute to a more balanced macroeconomic policy mix.

13. Staff also recommended reassessing the medium-term fiscal target during the forthcoming budget discussions. Chile’s high dependence on volatile commodity income and vulnerability to natural disasters make large fiscal buffers particularly useful. Rebuilding these buffers at a faster pace than currently envisaged by the government would increase the country’s capacity to respond to adverse shocks in the future and would help it confront longer-term fiscal challenges. Staff argued that under the current favorable macroeconomic conditions, it would be feasible to achieve structural balance by 2014, and to move to a structural surplus target thereafter.

14. The authorities agreed that fiscal restraint is appropriate in the current phase of the cycle. They emphasized that they had reduced the growth of fiscal spending substantially during 2010-11 and had also introduced some temporary tax increases. They noted that real government expenditure would grow by less than real GDP in 2011, and reiterated their commitment to keep the rate of public spending growth below GDP growth in the medium term. The appropriate fiscal stance for 2012 would be deliberated in the forthcoming budget exercise.

C. Maintaining Exchange Rate Flexibility

15. The flexible exchange rate system continues to serve Chile well. Exchange rate flexibility has helped contain speculative capital inflows by reducing one-sided bets on the currency, and the nominal appreciation has mitigated inflationary pressures. Staff analysis based on cross-country data suggests that that exchange rate flexibility could help restrain the expansion of credit (especially foreign exchange-denominated credit) during episodes of large capital inflows (see Selected Issues Paper, Chapter 2).

16. There was agreement that there was no strong case for extending the program of foreign exchange intervention beyond the end of 2011. The pre-announced intervention was consistent with the flexible exchange rate regime as no particular level of the exchange rate was targeted. The nominal exchange rate vis-à-vis the U.S. dollar depreciated temporarily after the initial announcement, but has now returned to pre-intervention levels. Staff and the authorities agreed that the reserve level at end-2011 would be fully adequate based on various reserve metrics (see chart). In addition, the interest rate carry cost of intervention has increased. A careful cost-benefit analysis would be warranted in future intervention decisions.

A01ufig04

Chile: Foreign Reserve Cover

Citation: IMF Staff Country Reports 2011, 260; 10.5089/9781463902223.002.A001

D. Mitigating Risks to Financial Stability

17. The main near-term risks to financial stability are related to potential disruptions in global financial markets. Stress tests conducted by the FSAP mission last April suggest that banks’ capital ratios will remain above minimum requirements, even if economic conditions deteriorate and the cost of funding increases relative to baseline projections. The main external risk is a resurgence of global financial stress (prompted by concerns about debt sustainability in peripheral Europe or the US, for example), spilling over to the domestic financial system. However, staff agreed with the authorities that the impact of such shock on the domestic financial system should be contained. On average, only 10 percent of bank funding comes from external sources, most of it long-term. Market measures also suggest a low risk of contagions—the correlations between stock prices of domestic banks and Spanish banks are currently quite low. Nonetheless, staff cautioned that some banks rely more heavily on foreign and wholesale funding than others, and these banks are likely to be affected in the event of a sudden increase in global risk aversion. There was agreement that it would be prudent for banks to continue to maintain high levels of liquid assets on their balance sheets, lengthen the maturity of funding, and diversify their non-deposit funding sources.

18. Staff and the authorities agreed that containing vulnerabilities should be the main focus of prudential policies. The easing of credit conditions, in the context of strengthening credit demand, is likely to sustain high rates of credit growth. Against this backdrop, staff welcomed the authorities’ efforts to enhance provisioning practices in the banking sector (see Selected Issues Paper, Chapter 3). Staff also noted that Chile’s banks face strong competition from non-bank providers of credit, which could create incentives for greater risk-taking. Staff noted that one area of potential concern is the fast growth of credit card debt (though from a relatively low base), a large share of it extended by department stores, outside the scope of banking regulation. Continued monitoring of corporate foreign borrowing is also warranted. The authorities acknowledged these potential vulnerabilities, but noted that the strengthening of credit growth observed thus far has been commensurate with the rise in income.

19. The option of using prudential measures to limit the rate of credit growth was discussed. As interest rate differentials continue to widen and pension fund outflows moderate, capital inflow pressures may intensify, raising the risk of credit and asset price bubbles. There was agreement that if this risk materializes, it would be advisable to supplement the macroeconomic policy response (tighter fiscal policy and exchange rate flexibility) with prudential measures. The choice of measures would depend on the specific problems that arise and could include, for example, caps on loan-to-value and debt-to-income ratios. Staff also recommended allowing for countercyclical capital buffers in the revised Banking Law, in line with Basel III proposals. The authorities noted that they would consider carefully these suggestions.

20. Staff supported the authorities’ plans to strengthen the financial system’s regulatory and supervisory framework. The proposed improvement in the governance structure of the supervisory agencies should enhance their operational independence and increase accountability. Plans to modernize the General Banking Law and the Insurance Law, provide an adequate legal framework for derivative contracts, and strengthen consumer protection in the area of financial services are also welcome. The creation of a high-level Financial Stability Committee, announced in July 2011, is an important step towards enhancing macroprudential oversight (see the companion FSSA report for further discussion). Despite the progress, there is scope for further reforms, including the development of a legal framework for consolidated supervision and the adoption of uniform regulatory standards for institutions providing similar financial services (see Box 2 for a summary of the FSAP recommendations).

Chile FSAP Update: Main Recommendations1

article image
1 H/M: High or medium priority. S/M: suggested timetable for implemented (short or medium term).

21. Efforts to reduce information gaps in financial and credit market should continue. Staff noted that the proposed consolidated credit registry (including information from both banks and department stores) will help improve the assessment and pricing of credit risk. Staff also urged the authorities to give priority to the construction and publication of standardized house and commercial property price indices. The authorities explained that they are currently working on a house price index based on tax records, and should be able to publish it by year-end.

E. Strengthening the Fiscal Policy Framework

22. Staff welcomed continued efforts to strengthen Chile’s fiscal policy framework. The expert commission established last year by the government to review and propose changes to the fiscal rule framework made its recommendations in two reports (made public in December 2010 and June 2011). Most suggestions for improving the calculation of the structural fiscal balance made in the first report have been adopted. In addition, work is under way to improve the medium-term fiscal framework. The more detailed recommendations in the commission’s June 2011 report (Box 3) are in line with last year’s staff analysis of options to strengthen Chile’s fiscal rule.1 On that basis, staff supported the report’s suggestions to make the calculation of the structural balance more transparent; reduce the procyclicality caused by large changes in long-term copper prices; and add an explicit escape clause to the rule. The proposed formation of an independent Fiscal Council in charge of assessing fiscal policy would be an important addition to the institutional framework.

The Advisory Committee’s Recommendations for Reforming the Fiscal Rule

The expert committee appointed by the Government to propose reforms to the fiscal rule published its final report in June 2011. Its main recommendations are the following:

  • The cyclically adjusted balance (or structural balance) should reflect adjustments to fiscal revenues only to the extent that they are affected by the economic cycle and by deviations of copper and molybdenum prices from trend.

  • The structural balance should be calculated at the central government level. It should not make cyclical adjustment for interest income or interest payments. It is recommended to transition to a primary balance indicator in the future to eliminate the effects of exogenous changes in interest rates, the procyclicality induced by the accumulation and withdrawal of net financial assets, and to establish a more direct link with fiscal sustainability analysis.

  • The fiscal rule should be complemented by a mechanism giving the fiscal authority scope to implement countercyclical fiscal policy. The parameters governing the mechanism would be set at the beginning of a new administration.

  • In the case of substantial changes to fiscal rule parameters that affect cyclically adjusted revenues (such as long-term copper prices), the government should use partial adjustment mechanisms to smooth the convergence towards a new long-run equilibrium.

  • The introduction of exit clauses would allow the administration to waive the requirement to meet the rule strictly under exceptional circumstances. In case exit clauses are invoked, it is necessary to define policies to ensure a return to the original fiscal path.

  • The fiscal authority should be held accountable for meeting the fiscal goals established in the budget. To this end, the mid-year fiscal update report should discuss the causes of any deviations from budget goals.

  • The fiscal target should be set at the beginning of each administration for the duration of its term. The choice of the target should be guided by a Value-at-Risk approach that accounts for contingent liabilities and factors that could affect fiscal assets in the future, for example expected changes in the mines’ mineral concentration.

  • Establish an independent Fiscal Council to evaluate fiscal policy. The proposed functions of the Council include evaluating the fiscal rule methodology; providing assumptions and projections for variables required to calculate the cyclical adjustment; assessing fiscal policy, the application of the fiscal rule, and medium-term and long-term sustainability; issuing a report in case there are changes to the principles and methodologies governing the budget; evaluating cases when exit clauses are invoked and the proposed strategy to converge to the structural balance target; and issuing an opinion on the coverage of the contingent liabilities report.

23. Staff stressed the importance of establishing a clear link between near-term and long-term fiscal targets. The consistency of current fiscal targets with long-term sustainability and intergenerational objectives should be discussed in the budget document. A careful analysis of long-term fiscal challenges, policy trade-offs, and risks would help anchor policy decisions about the appropriate medium-term fiscal goals. Long-term projections should take into account rising health care spending related to demographic trends as well as the revenue effects of rising mineral extraction costs. The authorities agreed that the report on contingent liabilities should be extended to present a more realistic picture of expected long-term fiscal pressures and risks.

F. Raising Productivity Growth

24. Staff commended government’s efforts to enhance productivity growth. Initiatives aimed at reducing the cost of doing business, creating incentives for research and development, facilitating the entry of new firms, and reforming the corporate bankruptcy procedures are welcome. Staff noted that another important task remains increasing labor market flexibility and female participation rates, and encouraged the authorities to persist in their efforts to build a political consensus for labor market reforms. The ratio of minimum-to-average wage is higher in Chile than in most OECD countries, which could hinder employment growth and contribute to the expansion of the informal sector.

IV. Staff Appraisal

25. Chile has recovered rapidly from the global financial crisis and strong growth is expected to continue. Real GDP is expected to grow by 6½ percent in 2011 on the back of buoyant domestic demand. Consumption will benefit from strong employment growth and firming wages, while large reconstruction spending will support investment. Domestic risks to the outlook are mostly to the upside. The main downside risks are related to the possibility of a sharp slowdown of economic activity in Asia, or an intensification of global financial stress.

26. The key task of macroeconomic policies at the current juncture is to ensure a smooth transition to a sustainable path for domestic demand. The output gap has closed and some capacity constraints are emerging. The current account balance has narrowed, despite favorable terms of trade, and is expected to deteriorate further as rapid import growth continues to outpace export growth. Upward pressures on headline CPI have eased in line with commodity price developments, but core inflation is likely to continue to rise as spare capacity diminishes further.

27. The authorities have appropriately started to withdraw policy stimulus. Fiscal expenditure growth moderated in 2010 (from very high levels during the crisis), and is expected to be somewhat lower than GDP growth in 2011. The rapid pace of policy rate increases in the first half of 2011 reinforced market confidence that inflation pressures will be contained, bringing inflation expectations closer to the target. Staff agrees with the authorities that the magnitude and timing of any future policy rate moves would depend on domestic and global economic developments.

28. Staff urges the authorities to accelerate the pace of fiscal tightening and set more ambitious medium-term fiscal targets. Rebuilding fiscal buffers at a faster pace than currently envisaged would optimize the contribution of fiscal policy to macroeconomic stability. In the near term, greater fiscal restraint would help guard against upside inflation risks and improve the policy mix, reducing the risk of a surge in capital inflows and easing pressures on the exchange rate. In the long term, larger fiscal buffers will help preserve the government’s ability to respond to adverse shocks and prepare it to deal better with challenges related to population aging. Staff recommends aiming for a structural surplus in the medium term, and frontloading the adjustment.

29. Ongoing efforts to improve Chile’s fiscal policy framework are welcome. Staff supports the thrust of the recommendations of the commission for improving the functioning of Chile’s fiscal rule and its institutional framework. In particular, it supports the recommendations to improve the calculation of the structural balance, reduce unintended policy procyclicality caused by assumptions about long-term copper prices, and add an explicit escape clause to the rule. Introducing an explicit link between medium- and long-term budget targets would help improve the policymaking process. Staff believes that the establishment of an independent fiscal council would strengthen the framework and enhance the assessment of fiscal policy.

30. The flexible exchange rate system continues to serve Chile well. It has helped limit speculative capital inflows and mitigate inflationary pressures. Staff analysis suggests that the current level of the exchange rate is broadly in line with fundamentals. Foreign exchange reserves at end-2011 would be fully adequate based on various reserve measures and staff sees no case for extending the intervention program beyond the end of the year.

31. Although financial soundness indicators remain strong, continued vigilance is necessary to contain vulnerabilities. In the context of heightened risks of a rise in global financial stress, it would be prudent to continue to maintain high levels of liquidity in the financial system. In addition, continued monitoring is needed to prevent an excessive buildup of leverage in the corporate and household sectors. In case concerns arise about the speed of credit or asset price growth, prudential measures could be considered to help maintain stability.

32. Staff supports the planned enhancements to the regulatory and supervisory framework for the financial system discussed during the FSAP update. Staff commends the authorities for advancing measures aimed at modernizing Chile’s regulatory framework, including the establishment of a financial stability committee, the strengthening of consumer protection in financial services, the adoption of a commission structure for the supervisory agencies, and planned changes in the Banking Law. As the FSSA points out, it would also be advisable to strengthen the legal basis for oversight of financial conglomerates, the framework for anti-money laundering and combating the financing of terrorism, and the procedures for resolution of failed financial institutions.

33. Boosting productivity remains the key long-term challenge. Government initiatives to reduce the cost of doing business, increase competition, support research and development, and reform the corporate bankruptcy code are welcome. Another important goal is increasing labor market efficiency and raising labor force participation.

34. Staff recommends that the next Article IV consultation takes place on the standard 12-month cycle.

Figure 1.
Figure 1.

Domestic Demand and Net Exports

(Through May 2011)

Citation: IMF Staff Country Reports 2011, 260; 10.5089/9781463902223.002.A001

Sources: Haver Analytics Inc., Chilean authorities, and Fund staff calculations.
Figure 2.
Figure 2.

Inflation, Labor Markets and Monetary Policy

(Through July 2011)

Citation: IMF Staff Country Reports 2011, 260; 10.5089/9781463902223.002.A001

Source: Haver Analytics Inc.
Figure 3.
Figure 3.

External Current Account Balance

(Through May 2011)

Citation: IMF Staff Country Reports 2011, 260; 10.5089/9781463902223.002.A001

Sources: Central Bank of Chile and Fund staff calculations.
Figure 4.
Figure 4.

Financial Markets

(Through June 2011)

Citation: IMF Staff Country Reports 2011, 260; 10.5089/9781463902223.002.A001

Sources: Central Bank of Chile, SVS, and Fund staff calculations.
Figure 5.
Figure 5.

Fiscal Policy

(2001–11)

Citation: IMF Staff Country Reports 2011, 260; 10.5089/9781463902223.002.A001

Sources: Minister of Finance and Fund staff calculations.
Figure 6.
Figure 6.

Net IIP and Capital Flows

(Through May 2011)

Citation: IMF Staff Country Reports 2011, 260; 10.5089/9781463902223.002.A001

Sources: Central Bank of Chile and Fund staff calculations.
Figure 7.
Figure 7.

Banking Developments

(Through May 2011)

Citation: IMF Staff Country Reports 2011, 260; 10.5089/9781463902223.002.A001

Sources: Central Bank of Chile, SBIF, and Fund staff calculations.
Figure 8.
Figure 8.

Equity Return Pairwise Correlation, Spanish and Chilean Banks 1/

(January 2005–June 2011)

Citation: IMF Staff Country Reports 2011, 260; 10.5089/9781463902223.002.A001

Sources: Datastream, LLC and Fund staff calculations.1/ Corresponds to the 12-month daily equity return correlation between Chilean and Spanish banks, where returns are calculated in Chilean pesos. An increase indicates a greater correlation.
Table 1.

Chile: Selected Social and Economic Indicators

article image
Sources: Central Bank of Chile, Ministry of Finance, Haver Analytics, and Fund staff estimates.

Contribution to growth.

The methodology to compute the unemployment rate changed in 2009.

INS REER. A positive change implies a real appreciation; a negative change implies a real depreciation.

Gross saving of the general government sector, including the deficit of the central bank.

Gross consolidated debt of the public sector (central bank, non-financial public enterprises, and general government).

Table 2.

Chile: Summary Operations of the Central Government

(In percent of GDP)

article image
Sources: Ministry of Finance (DIPRES) and staff estimates.

Based on the authoriites' medium-term fiscal projections in the 2011 Budget Law, adjusted for staff's GDP and copper price projections.

Based on staff' s output gap estimates and WEO copper prices.

In percent of non-mining GDP.

Table 3.

Chile: Summary Operations of the Public Sector 1/

article image
Sources: Ministry of Finance (DIPRES) and staff estimates.

This table reflects the authorities’ revisions to historical official data to bring the fiscal accounts in line with GFSM 2001.

Includes the effects of valuation changes (inflation) to the stock of UF debt and accured interest on Treasury debt, excludes administrative expenses and provisions.

On a cash basis. Municipalities hold neither sizable financial assets nor debt.

The data reported here does not include depreciation as an expense.

Table 4.

Chile: Balance of Payments

article image
Sources: Central Bank of Chile, Haver Analytics, and Fund staff estimates.

In 2010 reflects insurance payment associated with the earthquake.

“Other” variations in reserves largely reflect changes in deposits by commercial banks and the government with the central bank. as well as the repayment of foreign currency bonds, completed in 2006.

Updated staff forecasts, average.

Table 5.

Chile: Monetary Survey

(In billions of pesos; unless otherwise indicated)

article image
Sources: Central Bank of Chile and Haver Analytics.
Table 6.

Chile: Medium-Term Framework

article image
Sources: Central Bank of Chile, Ministry of Finance, Haver Analytics, and Fund staff estimates.

Medium-term projections are consistent with potential growth of 4.5 percent for 2013-2016.

Contribution to growth.

Gross saving of the general government sector, including the deficit of the central bank.

Gross consolidated debt of the public sector (central bank, non-financial public enterprises, and general government).

IMF staff forecasts, average.