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Chile 2007 :
A pragmatist approach to global integration
Jacques de Larosière
Advisor to the Chairman of BNP Paribas
and Former Managing Director of the
International Monetary Fund
Latin American Economic Outlook Conference
Vittorio Corbo
President, Central Bank of Chile
Paris  29th January 2007
I
The Chilean Economy
II
The Chinese Connection
III
Conclusions
2
Chile is one of the few Latin-American countries
converging with the US
GDP per capita absolute terms
GDP per capita relative to US
100%
Mexico
Brazil
90%
Chile
80%
USA
20,000
70%
Average LA8
% GDP USA
1990 Geary-Khamis international dollars
25,000
Plebiscite in Chile, 1988
15,000
Chile
60%
50%
40%
Mexico
10,000
30%
Average LA8
20%
5,000
Brazil
10%
0
1850
0%
1870
1890
1910
1930
1950
1970
1990
1850
1870
1890
1910
1930
1950
1970
1990
Source: OECD Development Centre, 2007.
Based on Angus Madison, Historical Statistics. The World Economy, Paris, OECD, 2003.
3
Chile has also been able to take advantage of
globalization by opening up and attracting FDI
Foreign Direct Investment % GDP
Exports % GDP
50
Chile
59%
% GDP
% GDP
69%
49%
Mexico
30
39%
Mexico
29%
20
Brazil
Brazil
19%
USA
9%
-1%
1980
Chile
40
USA
10
0
1985
1990
1995
2000
2005
1980
1985
1990
1995
2000
• Chile is one of the most successful countries in the region attracting FDI
• It has also become a champion exporter
Fuente: UNCTAD and World Development Indicators, World Bank, 2006.
4
2005
One of the strongest motors of growth for Chile
has been its dynamic financial system
Financial Development in Chile
Financial strength index
70
60
100
50
0
Philippines
0
Korea
10
Mexico
20
Brazil
20
Philippines
40
Chile
30
Brazil
40
60
Korea
Private bonds/ GDP
Mexico
%
80
Malaysia
%
120
Chile
140
Malaysia
Private credit/GDP
Stock market capitalization/ GDP
160
Financial Strength Index based on Moody’s index of financial system strength, based
on a numerical scale assigned to weighted average bank ratings by country.
• Chile’s financial system is one of the most dynamic in the region, but it still has to catch
up with other emerging economies in some aspects
• In some aspects, e.g. stock market capitalization, Chile is doing even better than Korea
Source: Betancour, C. De Gregorio, J. Jara A. “Improving the Banking System: The Chilean Experience”. BIS Papers. No. 28, 2006.
5
Pension reform in Chile has had a significant
impact on growth rates and productivity
PENSION FUND ASSETS AND LABOUR FORCE
ENROLMENT
120
115
110
60
50
105
100
95
90
% GDP
85
80
75
40
8
Pension Workers Pension Funds
Admin. (right axis)
6
4
20
2
10
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
0
0
PENSION REFORM CONTRIBUTION TO
GROWTH
TOTAL FACTOR PRODUCTIVITY
1962-2002
Pensions reform contribution to growth
160
150
140
130
120
110
100
90
80
6
Growth rate
5
0.5
(%)
4
3
2
2002
1998
1994
1990
1986
1982
1978
1974
1970
1966
1
1962
Base year 1960=100
Pension Funds Assets (left axis)
30
1980
% of Invest.
SAVING RATES (% TOTAL INVEST.)
3.1
4.1
0
GDP Growth 1960-1980 GDP Growth 1981-2001
Source: Vittorio Corbo, Klaus Schmidt-Hebbel. “Efectos Macroeconómicos de la Reforma de Pensiones en Chile”. Banco Central de Chile,
Septiembre 2003. Based on data from Instituto Nacional de Estadística, Chile.
6
I
The Chilean Economy
II
The Chinese Connection
III
Conclusions
7
China has become a major trading partner for Latin
America and for Chile in particular
Latin American exports to China
(share of total exports)
12
2000
12
6
4
2
0
2000
10
% of total imports
2005
8
2005
8
6
4
2
Source: Dirección General de Relaciones Económicas Internacionales de Chile, 2006.
8
Venezuela
Bolivia
Brazil
Argentina
Colombia
Mexico
Peru
Chile
Mexico
Bolivia
Colombia
Venezuela
Brazil
Argentina
Peru
0
Chile
% of total exports
10
Latin American Imports from China
(share of total imports)
Chile’s exports destinations have diversified
Regional distribution of Chilean exports
to the world in 2005
North
America
(Nafta),
23%
Others
4%
Latin
America
12%
Country distribution of Chilean exports
to Asia in 2005
Others
13%
Japan
32%
China
31%
Europe
25%
Asia
36%
India
4%
South Korea
16%
Source: Dirección General de Relaciones Económicas Internacionales de Chile, 2006.
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This is very good news and a wise strategic bet
30%
% of World GDP
• Asia is a good bet for the
future
% World GDP
25%
USA
20%
15%
China
10%
Japan
The Asian drivers
12
10
8
6
4
2
0
China
• Other alliances with Asian
economies are a bigger
opportunity for Chile
2000
Indonesia
1990
Korea
1980
Phillipines
1970
Thailand
1960
Malaysia
0%
1950
Average GDP Growth rate
2000-2005
5%
Source: OECD Development Centre, Agnus Madison database, and DIRECON, 2006.
10
Chile openness to trade and investment is
remarkable, but export specialization is still high
Share of Chilean Exports to China
35
12
Share of Main Chilean Exported Goods
2005
30
25
8
20
%
% of Total Exports
10
6
15
4
10
2
5
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
0
0
Copper
Ores, slag
Fish and
derivatives
Fruits
Wood
related
Source: OECD Development Centre, 2007.
Based on: Intracen, Economist Intelligence Unit and Index of Economic Freedom (Wall Street Journal).
11
Pulp of
wood,
fibrous
materials
A potential pitfall is that Chile’s exports to China
are becoming more concentrated in mining
Chile: exports to the world
excluding China, by sector
Chile: exports to China,
by sector
Agriculture
Mines
20000
Industry
80
18000
70
16000
60
14000
Millions USD
% of total exports to China
90
50
40
30
Agriculture
Mines
Industry
12000
10000
8000
6000
20
4000
10
2000
0
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: Dirección General de Relaciones Económicas Internacionales de Chile y Banco Central de Chile, 2006.
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I
The Chilean Economy
II
The Chinese Connection
III
Conclusions
13
Conclusion: Chile is looking towards Asia
Western Hemisphere
199394
Economic
Agreements
Bolivia
Colombia
Ecuador
Venezuela
1996
1998
1999
FTA Mexico
Economic
Agreement Peru
FTA Canada
Association
with Mercosur
Asia
2002
2003
Economic
Association EU
FTA Central
America
2005
2006
FTA China
Economic
Association P-4
FTA USA
EFTA
South Korea
2007
Current
negotiations
with India
and Japan
Study for an FTA
with Thailand
Partial Scope
Agreement
India
EFTA: European Free Trade Association: Iceland, Liechtenstein, Norway, Switzerland.
Note: TheP-4 group are: Brunei Darussalam, Chile, New Zealand, Singapore.
Source: Dirección General de Relaciones Económicas Internacionales de Chile, 2006.
14
Concluding Remarks


Chile has made significant improvements to become a
leading model for the region:

Financial sector development.

Pension Reform.

Trade openness and international insertion.
New trading partners, particularly Asia, have become
increasingly important for Chile.
15
Chile 2007 :
A pragmatist approach to global integration
Jacques de Larosière
Advisor to the Chairman of BNP Paribas
and Former Managing Director of the
International Monetary Fund
Latin American Economic Outlook Conference
Vittorio Corbo
President, Central Bank of Chile
Paris  29th January 2007
ANNEX
17
The good news is that Chile need not fear
competition with China on a global level
Chinese trade competition
with Latin America
Chinese global trade competition
0.7
0.6
Thailand
Hungary
0.5
0.4
Coefficient of conformity
Coefficient of conformity
Mexico
Costa Rica
0.3
Brazil
0.2
0.1
Argentina
Peru
Venezuela
0.0
0.0
0.1
Colombia
Mexico
0.5
USA
Czech R.
Japan
0.4
Poland
0.3
Spain
Chile
0.2
0.6
0.3
0.4
Coefficient of specialisation
0.5
0.6
0.2
0.30
0.35
0.40
Low specialisation
0.45
0.50
0.55
High specialisation
Note: Both CS and CC coefficients are indicators of trade competition, based on the export structure of each country. As coefficients approach to zero,
competition between countries tends to be small, due to export complementarities. When coefficients increase, competition increases.
Source: Blázquez, Rodríguez and Santiso, 2006.
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0.6
China’s demand for commodities:
a bonanza or a threat?
*
Asian countries competition vs. Chinese exports to
US, %
70
60
50
40
30
20
10
0
60%
Latin American countries competition* vs. Chinese
main export products
50%
40%
30%
20%
10%
0%
åa
*Value of exports to US from China in same product categories as
country´s exports, as % of country´s total exports to US
Source: C.HJ.Kwan, Nomura Institute of Capital Markets Research
*Arithmetic average of the following indexes: CC=
n
it
a njt
n
å
( a itn ) 2 å ( a njt ) 2
n
n
and CS= 1 -
1
å aitn - a njt
2 n
where ajt and ait equals the share of item “n” over total exports of countries j (China) and i in
time t.
Source: Blázquez, Rodríguez and Santiso, 2006.
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