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Chile Overview

    Context

    Chile is one of Latin America’s fastest growing economies, with a gradual deceleration observed in 2013.  Preliminary figures from the IMF put real GDP growth for 2013 at 4.6% compared to 5.6% in 2012, explained by private consumption, despite its moderation, and net exports, as gross fixed capital formation has decelerated. The Peso depreciation experienced since May 2013 has helped to improve external price competitiveness in a context of lower copper prices.

    However, the higher export volume was not enough to compensate the lower copper price resulting in lower copper revenues in 2013. Combined with slower non copper revenue growth and higher public investment, the overall Central Government balance deteriorated to a deficit of 0.6 % of GDP in 2013 from a 0.6% surplus in 2012. For 2014, the Central Bank and consensus forecasts project a 4.2% growth rate, which is in line with potential growth. Most potential risks to Chile relate to changes in the global context, especially to the slowdown in China, which affects not only Chile’s external demand, but most importantly copper prices.

    The effects of strong growth on employment and income have significantly reduced poverty rates. Some 7 million people escaped from poverty between 2004 and 2012. Urban formal sector employment grew steadily between 2001 and 2008, and bounced back quickly after declining somewhat during the crisis. Despite the fact that strong economic growth improved employment conditions and employment creation, earnings and labor productivity have been distributed unevenly, and some segments of the labor force, particularly young people, still face difficulties in accessing new employment opportunities.

    Despite Chile’s growth over the past 20 years, its per capita income has yet to converge with income levels of high income countries. Its 2012 per capita income at US$15,847 was still about half of OECD average. Another critical challenge is the unequal income distribution (GINI coefficient is 0.52, above the LAC average rate of 0.48). This is connected to increasing social demand: Chile has reached a level of development in which the society’s demand for structural reforms such as better education, health and less inequality is becoming stronger.

    The new government, with the return of former president Michelle Bachelet (2006-10), , has a policy agenda that prioritizes strengthening of public services and increasing redistribution.  The three key areas of reforms announced by president Bachelet’s team are: educational reform (free for all), corporate tax reform, and constitutional reform.

    More broadly, the government will continue to face the important challenge of addressing the rising expectations of Chile’s expanding middle class, as well as its poor and indigenous groups on improving access to and quality of services, particularly education. 


    Last Updated: Mar 31, 2014

    LENDING
    Chile: Commitments by Fiscal Year (in millions of dollars)*
    *Amounts include IBRD and IDA commitments
    Strategy

    The Country Partnership Strategy (CPS) for 2011-2016 builds on the successful experience of the prior World Bank Group (WBG) strategy in Chile. The strong institutional framework, a stable economy and the relatively advanced development level facilitate an engagement in which the Bank’s added value lies mainly in the knowledge agenda.

    In a context of low financing needs and abundant access to capital markets at low spreads, Chile’s demand for Bank services concentrated on the provision of technical assistance and other knowledge products in areas in which the Bank has a comparative advantage and can support the country’s drive to achieve its development goals. This is an important two-way investment for the Bank given that Chile’s development experiences of the past decades are highly valued among other clients and continued engagement should allow for important spillovers into the Bank’s work in other countries, as well as stronger south-south cooperation.

    This CPS aims to support the Government of Chile's vision of eradicating extreme poverty by 2014 and becoming a developed country by the end of the decade. This support will be carried out through focused interventions in specific themes that have been distributed into three areas that broadly coincide with the government's development agenda:

    • Public sector modernization;
    • Job creation and equity improvement; and
    • Promotion of sustainable investments.

    The CPS covers six years and includes a flexible program to be carried out mainly through demand-driven studies and a small lending and grant portfolio. The bulk of the knowledge work will be delivered through studies structured around a Joint Studies Program funded by the Bank (US$400,000 per year) and the Government of Chile (up to US$800,000 annually), with the possibility of additional timely assistance through fee-for-service. In addition, the Bank will continue to provide some limited financing for projects where the Bank’s support adds value in policy implementation in selected areas.

    The main objective of support from the International Finance Corporation (IFC) will be to foster entrepreneurship in advanced fields or to develop innovative business models in a narrow range of sectors. Initially, investments will target tertiary education, vocational training, infrastructure, energy and financial services.

    Last Updated: Mar 31, 2014

    LENDING
    Chile: Commitments by Fiscal Year (in millions of dollars)*
    *Amounts include IBRD and IDA commitments
    Results

    The current Bank program includes a portfolio of two ongoing operations on Higher Education and Public Expenditure Management that amount to a total of US$ 64.8 million. The objective of the first Project is to improve quality and relevance for students in tertiary education by strengthening the link between funding of tertiary education institutions and accountability for performance. The second project aims to increase the efficiency of operations regarding financial management, budget formulation, and budget execution, and the transparency of public expenditure management at the central and municipal level through the implementation of an updated, functionally enhanced and expanded financial administration system (SIGFE).

    The core of the Bank’s contribution to the country has been in the form of a programmatic cost-sharing program. Since 2010, the Bank has contributed with a total of 31 studies to the reform process in higher education, the national water sector reform, concession infrastructure strategy, and public sector management efficiency.

    IFC interventions in Chile focus on activities with a strong potential for development impacts, mainly in infrastructure, energy, the financial sector, education and agribusiness, with small and medium enterprises (SMEs) being a cross cutting theme. As of January 2014, the IFC portfolio in Chile was US$1.48 billion, consisting of about US$732 million for IFC’s own account, and about US$747 million in mobilization brining other financial sources from commercial banks, and other direct foreign investments to support projects.

    Last Updated: Mar 31, 2014

    LENDING
    Chile: Commitments by Fiscal Year (in millions of dollars)*
    *Amounts include IBRD and IDA commitments
Country Office Contacts
CHILE +562 654-1065

Dag Hammarskjod 3241, Vitacura, Santiago

sarzubiaga@worldbank.org
USA +1 202 473-1000

1818 H Street NW, Washington, DC 20433

sarzubiaga@worldbank.org