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CHILE

SELECTED ISSUES PAPER

November 2018

This paper on Chile was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on October 24, 2018.

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© 2018 International Monetary Fund

Title Page

October 24, 2018

Approved By

Luca Antonio Ricci (WHD)

Contents

• PRIVATE SECTOR INDEBTEDNESS IN CHILE: HIGH BUT WITH LIMITED RISKS

• A. Introduction

• B. External Debt

• C. Domestic Debt

• D. Concluding Remarks

• FIGURES

• 1. Selected Countries: Financial Development Index 2016

• 2. Selected EM: Total Private Sector Debt

• 3. Private Sector Debt

• 4. Selected EM: External Private Sector Debt

• 5. Private Sector Total External Debt

• 6. Gross NFC International Bond Issuance

• 7. External Debt by Sector

• 8. Non-financial Corporate Sector Assets and Liabilities

• 9. Selected EM: 10-Year Government Bond Yields

• 10. Selected EM: Diversified Broad Blended Yield

• 11.Total Domestic Credit to Private Sector

• 12. Private Sector Debt

• 13. Selected EM: Non-Bank Private Sector Debt

• 14. Household Debt

• 15. Selected EM: Household Debt, Loans, and Debt Securities

• 16. Selected EM: Real House Prices

• 17. Real House Price Index

• 18. Bank Loans to Private Sector

• References

• IMPACT OF DEBT ON SOVEREIGN CREDIT RATINGS AND SPREADS

• A. Introduction

• B. Dataset and Empirical Strategy

• C. Ordered Probit Regressions

• D. Panel Regressions

• E. Transition Probabilities

• F. Debt and Sovereign Spreads

• G. Concluding Remarks

• FIGURES

• 1. Gross Debt and Credit Ratings

• 2. Net Debt and Credit Ratings

• 3. Impact of Debt on Spreads Conditional on Institutional Quality

• TABLES

• 1. Ordered Probit Results

• 2a. Probabilities Implied by Ordered Probit Results (Gross debt)

• 2b. Probabilities Implied by Ordered Probit Results (Net debt)

• 3. Panel Regression Results for Credit Ratings

• 4. Panel Regression Results

• 5. Transition Probability Matrices

• 6. Panel Regression Results for Spreads

• 7. Impact of Debt on Spreads Conditional on Institutions

• ANNEX

• I. Credit Rating Categories

• References

• ANCHORING CHILE’S FISCAL FRAMEWORK

• A. Introduction

• B. Conceptual Framework and International Experience with Fiscal Rules and Anchors

• C. Debt Anchor Design

• D. How to Calibrate the Numerical Anchor(s)

• FIGURES

• 1. Central Government Gross Debt

• 2. General Government Balance, Structural Targets, and Copper Revenue

• References

• TRENDS IN CHILE’S COMPOSITION OF EXPORTS

• A. Introduction

• B. Trends in Export Composition

• C. Product Proximity and Predicting Future Trends in Export Composition

• D. Determinants of Export Composition

• E. Concluding Remarks

• FIGURES

• 1. Export Concentration

• 2. Export Sophistication

• 3. Economic Complexity

• 4. Chile’s Product Complexity

• 5. Chile’s Revealed Comparative Advantage

• 6. Prediction of Past Export Trends Based on Product Proximity

• 7. Prediction of Future Export Trends

• TABLE

• 1. Factors that Affect Composition of Exports

• ANNEXES

• I. Dataset and Data Description

• II. Trends in Services Exports

• References

• THE MACROECONOMIC EFFECTS OF EXTERNAL AND DOMESTIC SHOCKS IN CHILE

• A. Introduction

• B. Methodology

• C. Findings

• D. Concluding Remarks

• APPENDIX

• I. Technical Appendix

• References