Chile achieves medium overall compliance with international standards and codes, with a score of 54.17 out of 100 in our Standards Compliance Index. Compliance with standards and codes in the area of macroeconomic fundamentals is very satisfactory. Chile's on-going process of converging its accounting and auditing standards with International Financial Reporting Standards and International Auditing Standards respectively will bring the country closer to compliance with market-infrastructure standards. However, the scarcity of information on payment system compliance adversely affects Chile's observance in this area. Regarding Chile's financial supervision standards, while the banking system is well regulated and internationally integrated and securities market regulation is basically sound, albeit with some weaknesses, the insurance sector is still making efforts to improve its regulation and supervision in order to comply with international standards. The 2007 Markets II Reform Law, passed in June of 2007, involves certain improvements in the licensing and investment limits of insurance firms, indicating progress on some fronts.

Macroeconomic Policy and Data Transparency

According to the International Monetary Fund's (IMF) Special Data Dissemination Standards' (SDDS) website, the IMF's 2007 annual observance report, and the 2007 data module of the IMF's Report on the Observance of Standards and Codes (ROSC) for Chile, the country's economic and financial statistics are of good quality, meet SDDS requirements for coverage, timeliness, and periodicity, and satisfy specifications regarding accessibility and data integrity. While the annual observance report notes some relatively minor areas in which Chile could improve its performance in meeting data dissemination standards, both it and the ROSC applaud the commitment of Chile's statistical authorities to professionalism, transparency, and accessibility of data. Chile became a subscriber to the SDDS in May of 1996 and first met SDDS specifications in March of 2000. According to information provided on the IMF's SDDS website, Chile fully complies with the SDDS requirements on timeliness, periodicity, coverage, and access to data. However, with regards to the SDDS' integrity and quality dimensions, there are certain data categories posted on the SDDS website that do not fulfill all the requirements as stipulated by the SDDS. One of the most significant issues raised by the IMF's reports is the insufficient independence of Chile's National Statistics Institute (INE), due in large part to the short terms of office served by the directors and deputy directors and the terms by which these officials may be removed from their posts. A further important problem is the inadequacy of resources allocated to the INE and the Ministry of Finance's Budget Directorate, as well as shortcomings in the legislation governing the dissemination of official statistics. More »

The 2006 report by Oxford Analytica (OA) on Monetary Policy in Chile found that the country maintains a high degree of compliance with the Code of Good Practices on Transparency in Monetary and Financial Policies developed by the IMF. The Central Bank of Chile (BCCh) is empowered by law to develop and execute monetary policy, free of interference by the executive and legislative branches of government. The BCCh's monetary policy activities are governed by provisions of the national Constitution and the BCCh's own Organic Law. The Basic Constitutional Law specifies the BCCh's central obligations as the maintenance of price and currency stability. The IMF has raised objections to this dual mission, citing the potential for conflict, but this position has been challenged by Chilean authorities. Both OA and the IMF find that the BCCh's inflation-targeting framework is clearly explained in publications and on the BCCh website. OA applauds the BCCh's ongoing commitment to transparency as evidenced by its wide range of publications, the excellence of its public information services, and its active solicitation of the opinions of outside scholars and experts in the field. Chile subscribes to the IMF's SDDS and meets SDDS specifications for the dissemination of its monetary policy data. More »

Both the 2006 OA Fiscal Transparency report and the IMF's 2003 and 2005 ROSCs on fiscal transparency found that Chile has achieved high fiscal transparency, although both found areas in which improvements could be made. OA awarded an overall assessment of "Compliance in Progress" to Chile, recognizing the country's ongoing efforts underway to improve and enhance transparency practices. Both the IMF and OA also express approval of Chile's use of the "structural surplus rule," by means of which Chile has been able to maintain a strong and successful fiscal policy stance. The 2008 IMF Article IV Consultations with Chile disclose that the country's approach to fiscal policy has contributed to its ability to withstand recent external shocks such as spiking fuel and food prices and the turmoil occasioned by the global credit crunch. More »

Institutional and market infrastructure

The World Bank's 2004 ROSC for Chile reviewed the then-extant insolvency and creditor rights regime in the country. The report found that, on the whole, Chile was in reasonable compliance with modern expectations of a credit-based economy. Nonetheless, the report disclosed several shortcomings, primarily occasioned by the over-reliance on real-estate as collateral. Also, the World Bank found that Chile did not adequately address the problem of pledges, although a bill before the Congress (the Bill on Capital Market Reform II) contained provisions that would specifically address many of these particular issues. Another problem identified by the World Bank report had to do with the lack of alternatives to the judiciary in the area of enforcement, leading to an overburdening of the court system and excessive delays in case resolution. In 2006, the International Monetary Fund urged swift passage of the Bill on Capital Market Reform II as an important way in which to improve Chile's insolvency regime. In June 2007, according to the 2007 IMF Article IV consultation report, the Capital Markets II Reform Law was enacted. More »

According to the assessment of accounting and auditing practices conducted by the World Bank in 2004, since 1997, Chilean standard setting authorities have been converging their national standards with international accounting and auditing standards. Nonetheless, significant differences between national and international standards still persist. The World Bank, therefore, recommended adopting International Financial Reporting Standards (IFRSs) promulgated by the International Accounting Standards Board for all public interest entities and developing simplified accounting standards for small and medium sized enterprises. In line with these recommendations, according to the Financial Sector Reform and Strengthening Initiative website, Chile embarked upon a project for the gradual adoption of IFRSs laid out in four phases. The Deloitte IAS Plus website explains that Chile will be adopting IFRSs for all companies registered with the Superintendency of Securities and Insurance (SVS) and all Superintendency of Banks and Financial Institutions (SBIF) regulated entities over a three-year period beginning 2009 and ending 2011. Other than a few exceptions, according to this plan, all major listed (open) companies, as well as banks and financial institutions will present financial statements in accordance with IFRSs by 2009. As for smaller listed (open) companies, insurance companies, mutual funds, pension funds, stock brokers and dealers, insurance agents, companies that issue publicly traded debt securities and listed companies unable to switch to IFRSs in 2009, will prepare financial statements in line with the international standards by December 31, 2010. Finally, other entities registered with the SVS, such as non-issuers that have voluntarily registered, will transition into IFRSs by 2011. Non-listed companies that do not fit in the above mentioned categories continue to adhere to the Chilean Generally Accepted Accounting Principles. More »

According to a 2003 World Bank assessment of Chilean corporate governance practices, Chile scores well on the assessment on compliance with the Organization for Economic Co-operation and Development (OECD) principles. Nonetheless, certain weaknesses were identified and the World Bank made policy recommendations in three broad areas relating to legislative reform, institutional strengthening, and voluntary/private initiatives. The World Bank recommended amending the legislative framework to achieve greater transparency and strengthening the market surveillance mechanisms. Improvements in the general enforcement of investor property rights were also suggested. More recently, a 2008 paper by Allen and Gourevitch notes that ownership is highly concentrated and that minority shareholder dissatisfaction is "substantial." However, Chile has been taking initiatives to achieve greater convergence with international practices. Law No. 19,705 known as the Corporate Governance Law was introduced in 2000 with the main goal to protect minority shareholder rights in Chilean companies, especially during changes in corporate control. Furthermore, according to the Deloitte IAS Plus website, by 2009, all major listed companies will be presenting financial statements in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board. More »

An assessment of accounting and auditing practices conducted by the World Bank in 2004 points out that since 1997 Chilean standard setting authorities have been bringing Chilean Generally Accepted Auditing Standards (GAAS) in line with International Standards on Auditing (ISAs). Although broadly aligned with ISAs, Chilean GAAS still differ from the international standards as it is less specific and fails to cover important accounting areas. According to the World Bank, this could hamper the accuracy of the financial statements and the perception of the quality of financial reporting by the stakeholders. The World Bank, therefore, recommended to either incorporate the missing ISAs into Chilean GAAS, or to adopt ISAs altogether. On January 21, 2004, the Inter-American Development Bank (IADB) approved a project "International Financial Reporting and Auditing Standards: Chile." Its primary purpose is to strengthen existing mechanisms to support the system of issuance and adoption of international standards, as well as to converge towards ISAs and international accounting standards. More recently, a 2007 Chilean Association of Accountants (CCC) self-assessment confirmed that the CCC is in the process of implementing the IADB convergence plan for the adoption of ISAs in Chile. It was decided that international standards will be adopted without modifications, the self-assessment explains. However, as of July 2008, there is no indication that ISAs had been adopted by the Chilean authorities. More »

The Financial Action Task Force of South America against Money Laundering (GAFISUD) conducted a mutual evaluation of Chile's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime against the Financial Action Task Force (FATF) 40+9 recommendations and special recommendations. GAFISUD published its findings in a 2006 report, in which it concludes that Chile is compliant with 8 recommendations and special recommendations; largely compliant with 15; partially compliant with 19 and; non-compliant with 7. The mutual evaluation notes that the overall AML/CFT framework in Chile achieves a relatively high degree of compliance with most of the FATF's recommendations and special recommendations. Nevertheless, there are some areas where Chile's AML/CFT regime could be enhanced. The GAFISUD mutual evaluation and a 2008 U.S. Department of State (DoS) report cite strict banking secrecy laws as a notable weakness in Chile's AML/CFT regime, as they seriously limit the ability of Chilean authorities to identify and investigate potential money laundering cases. Nevertheless, as of March 2008, a committee in Chile's House of Representatives is contemplating a draft law to ensure the Chilean financial intelligence unit (FIU) and prosecutors have easier access to bank and tax records. However, the U.S. DoS report notes that the law's passage is unlikely unless the president grants it urgent status. The mutual evaluation rates Chile as non-compliant with most FATF recommendations pertaining to Designated Non-Financial Business and Professions (DNFBPs) and according to the 2008 U.S. DoS report, DNFBPs are not under the supervision of any regulatory body for compliance with AML/CTF standards. Furthermore, the report states that the lack of a definition of "suspicious activity" for non-bank and non-financial institutions is a key deficiency in Chile's AML/CTF regime. Money laundering is criminalized pursuant to Law No. 19.366 of 1995, Law No. 19.913 of 2003, and Law No. 20.119 of 2006. Terrorist financing is criminalized pursuant to Law No. 18.314 of 1984 modified in 2003 by Law No. 19.906 and according to the 2008 U.S. DoS report, Law No. 19.906 improves upon Law No. 18.314 by making Chile's terrorist financing laws consistent with the provisions of the United Nations International Convention for the Suppression of the Financing of Terrorism. More »

The IMF, in 2004, conducted a Financial Sector Assessment Program (FSAP) of Chile's financial sector in which it conducted an informal assessment of the payment systems in the country. However, the findings of this assessment were not published. A 2007 (published in 2008) annual report by the BCCh notes that there are two high-value payment systems in the county, namely, the Real-Time Gross Settlement (RTGS) system owned and operated by the BCCh, and the High-Value Payment Clearing House, managed and run by ComBanc S.A. A 2004 Financial Stability Report by the BCCh noted that at the time of the launch of the RTGS system, the system met the standards recommended internationally for payment systems of systemic importance. A 2004 report by the Central Bank of Guatemala also states that the Chilean payment systems fulfill international standards on systemically important payment systems and provide a modern, efficient and secure payment system to the financial system. However, the information in the above reports is too sparse, random, and insignificant to provide an authoritative assessment of Chile's compliance with the Committee on Payment and Settlement Systems' Core Principles for Systemically Important Payment Systems. Besides, neither the above reports nor the information on the BCCh website explicitly cite which systems in Chile are of systemic importance to the Chilean financial system. More »

Financial Regulation and Supervision

The IMF's 2004 Financial System Stability Assessment (FSSA) concludes that Chile has a well established supervisory regime for banking. The report, itself, does not provide a detailed compliance matrix of Chile's adherence to the Basel Core Principles (BCPs) for Effective Banking Supervision. However, a report summarizing the findings of the FSSA was published by the SBIF, which provides details on Chile's compliance with the BCPs. The report indicates that Chile complies with 20 of the 30 (Principle 1 is divided into 6 subsections) BCPs, largely complies with 5, and is materially non-compliant with 4 and non-compliant with one. A 2007 IMF report also observes that Chilean banks are well-capitalized, deep, profitable, and resilient to external shocks. However, among the weaknesses mentioned by the FSSA is the lack of independence for Chile's banking sector supervisor, the SBIF. The FSSA does note that Chile is already working towards implementing some of its recommendations. Subsequent reports, including those by the IMF and the U.S. Department of State, indicate further progress made by the country in the area of banking supervision. It includes the enactment of the Capital Markets II Reform Law in 2007 that improves Chile's regulatory regime in the areas of capital adequacy, legal protection of supervisory staff, and licensing powers of the SBIF. Further, the strengthening of the anti-money laundering/combating the financing of terrorism framework and the tabling of a draft law, if enacted, would inch Chile closer in compliance with international standards. Finally, the shift of the SBIF's supervisory approach from a compliance-based to a risk-based framework is also expected to improve banking supervision in the country. More »

The 2004 FSSA conducted for Chile by the IMF and the World Bank finds the Chilean financial system sound overall and resilient to shocks, a sentiment repeated by a 2007 IMF report. The securities markets in the country are large, but limited in terms of liquidity, notes the FSSA. The regulatory system governing the securities market - post the mid 1990's reform - is adjudged "basically sound" by the FSSA. However, some weaknesses are noted especially in the context of increasing complexities in the capital markets, the consolidation of the financial services industry, the internationalization of the capital markets, and the need to adopt international best practices in regulation and supervision to enhance investor confidence in the Chilean markets. The key FSSA recommendations pertain to supervisory resources and capacity, as well as intervention and enforcement powers of the securities supervisor, the Superintendency of Securities and Insurance. The Capital Markets II Reform Law was enacted in 2007. The Law, according to a 2007 IMF report, is a substantial regulatory step forward by Chile to develop its domestic capital markets and enhance its security and depth. More »

A number of publications on insurance supervision in Chile indicate that the country has been making efforts to improve regulation and supervision in the insurance sector. In 2004, the FSSA conducted by the IMF identified flaws in the regulatory framework as well as in the supervisory approach of the Superintendency of Securities and Insurance (SVS). The FSSA, therefore, recommended Chile to introduce risk-based supervision, increase provisions, modify regulatory capital requirements, and strengthen off-site and on-site monitoring. The FIRST Initiative website also notes that the heavily compliance-based supervisory approach in the insurance sector is not in accordance with the International Association of Insurance Supervisors (IAIS) principles. With the assistance of the FIRST Initiative, a two phase project for Chile was started as a follow up on the FSSA in 2005 with an expected completion date of 2008. The project aims at strengthening the regulation and supervision of the insurance sector by introducing risk-based supervision. The SVS website also mentions a new model of risk-based supervision in preparation in Chile. The scheme, called Supervision Based on Risk, aims at focusing on solvency supervision with minimum solvency requirements and a risk assessment process in line with the IAIS standards. The 2007 Markets II Reform Law, per an IMF report of the same year, also involves certain improvements in the licensing and investment limits of insurance firms, indicating progress on some fronts. A 2008 IMF report recommends Chile to have an IMF FSAP Update to assess the viability of further reforms and their bearing on the supervisory and regulatory framework as well as market stability. More »

Legend:

Credit Ratings

Moody's A2/Stable

Fitch A/Positive

Standard & Poor's A+/Stable

Macroeconomic Data

2007 GDP (Current Prices): 163.8 billion USD (IMF)

2007 GDP (Per Capita): 9,879 USD (IMF)

2008 GDP (Growth Forecast): 4.5% (IMF)

2008 Inflation (CPI): 6.6% (IMF)

2007 Unemployment: 7% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 8 billion USD (UNCTAD)

FDI (Outward): 2.9 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 83 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)