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Quick Facts
- Population:
- GDP (PPP):
- $257.9 billion
- 5.3% growth
- 3.3% 5-year compound annual growth
- $15,002 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Chile’s economic freedom score is 78.3, making its economy the 7th freest in the 2012 Index. Its overall score is 0.9 point better than last year due to improved scores in property rights, freedom from corruption, and monetary freedom. Chile enjoys the highest degree of economic freedom in the South and Central America/Caribbean region.
Regaining its status as one of the world’s 10 freest economies, Chile continues to be a global leader in economic freedom. The economy benefits greatly from its solid foundations of economic freedom, which have been further strengthened in recent years. Recognizing the importance of limited government, the government has adhered to prudent public finance management practices that have kept public debt and recent budget deficits under control.
All the pillars of economic freedom are solidly maintained in Chile. With a transparent and stable business climate, the country has created a dynamic environment for entrepreneurs. Barriers to free trade are quite low, and commercial operations are aided by efficient regulations that support open-market policies. Inflationary pressures are under control, and foreign investment is welcome. Despite some stress in the financial system, Chile’s modern and diversified economy has emerged from the global economic turmoil relatively unscathed.
Background
From 1990 to 2009, left-of-center governments largely maintained the market-based institutions and sound economic policies established under the 17-year rule of General Augusto Pinochet. President Sebastian Piñera and his center-right Alianza coalition assumed power in 2010. Chile is the world’s leading producer of copper and has bounced back from the effects of a major earthquake in early 2010. An innovative, countercyclical fiscal policy accumulates surpluses when copper prices are high and operates in deficit only when prices and economic activity are low. This has helped maintain fiscal balance. Exports of minerals, wood, fruit, seafood, and wine drive GDP growth. Chile joined the Organisation for Economic Co-operation and Development in 2010.
Contractual agreements in Chile are the most secure in Latin America. Courts are transparent and efficient. Property rights are strongly respected, and expropriation is rare. Lingering intellectual property rights concerns involve protection of patents and copyrights. In 2010, the government implemented a new intellectual property law amending its copyright law, and the Chilean Congress has ratified the Trademark Law Treaty.
The top income tax rate is 40 percent. July 2010 tax amendments temporarily increased the 17 percent corporate tax rate to 20 percent for 2011. The rate will come down to 18.5 percent for 2012 and return to 17 percent for 2013. Other taxes include a value-added tax (VAT) and a property tax, with the overall tax burden equal to 16.1 percent of GDP. Government spending is 24.4 percent of total domestic output, and public debt is under 10 percent of GDP.
The overall regulatory framework facilitates entrepreneurial activity and productivity growth. The time needed to start a business has been reduced to seven days from 22, with only seven procedures required. Bankruptcy is relatively cumbersome and costly. Minimum wage increases have exceeded overall productivity growth in recent years, but labor laws generally facilitate efficient hiring and dismissal procedures. Inflation has been under control.
The trade weighted tariff rate is 4 percent, and non-tariff barriers are relatively low. Chile has actively pursued free trade deals with many countries. Guided by a transparent and efficient investment regime, foreign and domestic investors generally receive equal treatment. The financial sector remains one of the region’s most stable and developed. Capital market reforms to enhance access to financing for individuals and firms have progressed gradually.