Retrospective on Jeffrey A. Laborsky, “The Development of Financial Markets in Chile” from Chile in Transition Perspectives on Business and Economics, Volume 17, 1999 Jeffrey Laborsky '99 serves as chief executive officer of Heritage Environmental Services and board member of Heritage Group Holdings. Laborsky investigated reasons for the growth in investments and financial markets in Chile. He reviewed market performance and analyzed Chile’s economic situation. How have Chilean financial markets developed since 1999? Chile has sustained relatively steady economic growth since the 1990s. An open market and sustainable macroeconomic policies have supported this growth. Chile has a large and stable nonbank financial sector consisting of pension funds, mutual funds, and insurers. The financial markets took hits from social uprisings in Chile in 2019, followed closely by the COVID pandemic in 2020. However, a review by the International Monetary Fund (2021) concludes that the “twin shocks…were adeptly managed thanks to massive and well-coordinated supervisory and fiscal policy responses.” Since then, nonbank financial market actors have rebalanced portfolios in efforts to reduce risk. These events also tightened the liquidity of the banking sector. Chile experienced high inflation and accompanying elevated interest rates through 2022 and 2023. However, rates have since declined. The inflation rate in October 2022 was 12.8% but had fallen to 4.8% by November 2023 (Instituto Nacional de Estadisticas, 2023). What is the status of capital controls on investments in Chile? At the time of Laborsky’s article in 1999, many capital controls hindered investments into Chile. Since then, Chile has relaxed its capital controls. Tax reforms eliminated requirements of Decree Law 600 for a minimum stay for all foreign investments. As of January 1, 2016, foreign investors can choose between foreign investment statutes in Law 600 or Law 20.848. The latter law liberalizes foreign investments, “establishes the frame for ‘direct foreign investment’ in Chile and creates a Committee of Ministers for the promotion of foreign investment, as well as an Agency for the promotion of foreign investment” (Chili: Corporate..., 2023). Investors can freely invest in Chile as long as they go through the formal ex- change market. How have foreign investments in Chile developed since 1999? Chile has taken steps to create an inviting environment for foreign investors. The country has reduced entry barriers, adapted nondiscrimination policies for foreign investors, and encouraged foreign direct investment (FDI). These changes successfully fueled FDI growth, mainly in mining, financial services, agriculture, commerce, energy, and manufacturing. In 2018, Chile launched an updated online system that enabled smoother business transactions. Tax information, submission of complaints relating to contract enforcement, and registration of private companies were revised to make investments by foreigners easier. In 2022, FDI in Chile “rose by 32% to USD 13 billion, sustained by several large acquisitions and renewed interest in the mining industry, with the number of international project finance deals increasing 80% to 88 projects” (Santander, 2023). Chile’s macroeconomic stability has also helped attract FDI, making the country one of the most prosperous in South America. Fiscally, “foreign investors benefit from a moderate corporate tax and they are guaranteed access to the formal foreign exchange market, including free remittance of capital and profits” (Santander, 2023). The US has remained Chile’s top investor. Promoting FDI has been a strong economic driver for Chile and a main government developmental strategy. References Chili: Corporate - tax credits and incentives. (2023, September 6). PwC. Instituto Nacional de Estadisticas. Chile. (2023, November). Price indices and inflation. National Statistics Institute. International Monetary Fund. (2021, December). Chile: Financial system stability assessment. Santander | Trade. (2023, October). Chile: Foreign investment. Banco Santander. Retrospective by Randi Conroy ‘25 Finance, with mass communication minor Martindale Retrospectives 4 August 2024
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