Chile Country Risk Rating
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Chile remains a medium-low risk country in South America.
After the country rejected a constitutional reform backed by president Gabriel Boric – of the left-wing Unity for Chile party – in September 2022, an agreement on a new process was reached in December of the same year. The new version needs to be approved by both houses of Congress and is expected to be voted in November 2023. Headwinds are expected as the Republican Party (radical right-wing party) of José Antonio Kast obtained 23 seats of the Constitutional Council that will write the new reform, versus the 11 seats obtained by the traditional right-wing party and 17 of the Unity for Chile party. Thus, the new version is expected to be more moderate, i.e. more business-friendly. Political violence is a medium-low risk, but downside risks that stem from the second constitutional reform process might change this ranking in future revisions. The risk of sovereign non-payment is medium-low. The South American nation has been historically responsible with its finances. For example, in December 2022, the country achieved a fiscal surplus of 1.3% of GDP (the best performance in 10 years); similarly, it was able to stabilize its public debt at 38.0% of GDP. Such fiscal space also minimizes the risk of the government’s inability to provide stimulus, which stands at a medium-low level. The exchange transfer risk is medium. The country’s high susceptibility to commodity prices coupled with capital outflows made the exchange rate’s volatility increase by mid to end of 2022. These developments had to be countered by a successful FX intervention and a liquidity provision program from the Central Bank of Chile. The central bank has also activated a program to replace and expand international reserves for USD 10 billion. The banking vulnerability risk is medium. The sector is well regulated and financial indicators remain strong; for instance, non-performing loan ratios remain low, profitability returned to pre-pandemic levels, and the system is well capitalized. Some susceptibility exists as low-income agents might have been hit harder by the pandemic and higher costs. Supply chain is a medium-low risk as the threats mostly come from natural disasters, in particular earthquakes. The risk of doing business is medium-low. The country is well known for being open to foreign investment and it also benefits from multiple free trade agreements. An example of this is the tax treaty with the United States, approved on June 2023, which would get rid of double taxation for U.S. companies and reduce tax barriers to investment, particularly in Lithium. A downside risk in the near future is president Boric’s statist agenda and the likelihood of new regulatory and tax burdens.