Chile's Macro and Micro Economics

Culture of Chile 

Chilean culture reflects on the relatively homogenous population in addition to the country’s geographic isolation in relation to other South American countries. Moreover, since the colonial days, the culture of Chile has been a mix of indigenous culture (Mapuche) and the Spanish colonial elements. Because of this Chilean culture blending, the country has an interesting blend of a relatively heterogeneous society and ethnicities. The cultural and economic center of this country is the Santiago de Chile as it is the capital city of Chile. Moreover, the culture of Chile is expressed in various media such as the country’s film industry (Hojman, 2017). Furthermore, the country’s cultural art manifests itself in several ways and, mostly through the works of Carlos Sotomayor and Roberto Matt who expresses this Chilean culture in their various works. 

Chile’s Central Bank 

Chile’s Central Bank oversees all the banking activities of all the other Banks in Chile. It was formerly established in 1925 and has been incorporated into the current constitution of Chile as a constitutional rank autonomous institution. However, the Bank’s monetary policy is currently controlled by inflation targeting regime. The Central Bank of Chile (CBoC) was in August 1925 created through Decree Law 486 that was as well responsible for establishing the monopoly of the bank to issue bank notes under the gold standard government. The Bank’s structure of ten-member board established a degree of independence, which even today is implicit in avoiding capture by both the private and public sectors (Montecinos, 2017). The primary objective of CBoC is for safeguarding the currency stability as well as the normal functioning of both the external and internal payments. 

Gross Domestic Product (GDP) Growth of Chile 

Chile’s GDP is its economic measure of national output and income. Besides, its GDP is equivalent to the country’s total expenditure for all the produced finished services and goods within a given period. The Chilean GDP was worth $247 billion in 2016, thus resulting in the Chilean GDP in representing about 0.40% of the global economy. Besides, the Chilean GDP has averaged $70.53 billion from the year 1960 to 2017, thus reaching its highest value of $278.40 in 2017 as well as a low record of $4.10 in 1960 (Hojman, 2017). The increasing Annual Growth Rate of Chile’s GDP from 1960 to 2017 has been influenced by factors such as rebounding exports, increase in household spending, as well as a slight decrease in investment. 

Chile’s Exports 

Chile is considered the 35th world’s largest export economy. The top ten products exported by Chile are representing the highest value of the dollar in the 2017 Chilean global shipments (Montecinos, 2017). The following shows the percentage share being represented by each export category in regards to Chile’s overall export including the following: 

Copper: US $17.6 billion (26.6% of total exports) 

Slag, ores, ash: US $17 billion (25.8%) 

Nuts, fruits: $4.7 billion (3.8%) 

Wood: $2.2 billion (3.3%) 

Inorganic chemicals: $1.8 billion (2.6%) 

Meat: $814.4 million (1.2%) 

Fish: $5.3 billion (8%) 

Woodpulp: $2.6 billion (3.9%) 

Spirits, beverages, vinegar: $2.1 billion (3.1%) 

Precious metals, Gems: $1.4 billion (2.1%) 

Moreover, these top 10 exports of Chile accounted for about 84.3 percent of its global shipments overall value. 

Chile’s Imports 

The primary import products to Chile are such as chemicals, petroleum, telecom equipment and electronics, natural gas, vehicles, as well as industrial machinery. However, the largest imported product in the Chilean economy is machines that represent about a quarter of the country’s total imports at approximately $15.2 billion. On the same note, the commonly imported products include computers (1.8%), video displays (1.2%), as well as broadcasting equipment (2%). Additionally, after the machines, transportation and mineral products are Chile’s next most significant imports category (Hojman, 2017). Within these two distinct categories are the three chief imports of Chile including cars ($3.7 billion, or 5.4%), crude petroleum ($5.43 billion, or 7.8%) in addition to refined petroleum (5.33 billion, or 7.7%). 

Chile’s Trading Partners 

The top three import trading partners to Chile include China (21%, or $14.8 billion), the United States (20%, or 14 billion), as well as Brazil (7.7%, or $5.31 billion). Moreover, the crude petroleum main suppliers to Chile are such as Brazil with 43%, Ecuador with 36% and Angola with 6.4%. Besides, the United States is Chile’s significant trading partner as it takes the responsibility to provide the largest majority of refined petroleum (90%), which is the country’s second-largest imported product (Montecinos, 2017). The number two and three suppliers to Chile are Japan (4.5%) as well as the Netherlands (1.4%). Moreover, the three top countries supplying cars to Chile include South Korea (26%), Japan (22%), and the United States (10%). 

Chile’s Unemployment Rate 

The rate of unemployment in Chile rose to about 6.5% from 6.2% in the last three months to January 2018 in the same period of last year. Besides, the number of unemployed people in this country rose by 7.6% to 588 thousand while the employed number gradually grew to 8.434 million, or 2.5%. Across all sectors, there has been an employment growth primarily in manufacturing (3.5%) and education (10.8%). Besides, the rate of unemployment in Chile from 1986 to 2018 averaged to 8.09$, thus reaching a 13.50% all-time high in February 1986 as well as a 5.10% record low in 2018 (Hojman, 2017). It is imperative to understand that in Chile, the rate of unemployment measures the number of individuals actively seeking for jobs as a percentage of the labor force. 

Chile’s Monetary Policy 

The Central Bank of Chile (CBoC) left its benchmark rate of interest unchanged for the tenth month in 2017, thus making it maintain the monetary policy that is most expensive even with the accelerated inflation as compared to other South American countries. Additionally, Chile’s Central Bank during its 13 April meeting last year made a decision of reducing the monetary policy rate by about 25 basis points, from 3% to 2.7%, which marked the second consecutive monthly cut rate (Montecinos, 2017). This move by the CBoC came as a surprise to markets as they had expected that the rate would be left unchanged by the Bank. 

Chile’s Inflation Rate 

The inflation rate in Chile, also known as the historic inflation Chile (CPI) is based on the country’s consumer price index (CPI). Consumer prices in February 2018 were flat as compared to the previous month. This was caused by the highly increased costs of public transport since non-alcoholic and food beverages lower prices offset them. Additionally, Chilean inflation in January dipped from 2.2% to 2.0% in February, thus touching the Central Bank’s lower bound of 2.0%-4.0% tolerance range. After excluding the volatile categories including fruits, fuel, and fresh vegetables, key consumer prices in February rose by 0.1% month-on-month, down from the January’s 0.3%, while key inflation dropped from 1.8% in January to 1.6% in February (Montecinos, 2017). However, the pressures of weak price are partly influenced by the peso appreciation against the dollar since December the previous year as highlighted by the CBoC in its recent meeting on monetary policy. 

Chile’s Fiscal Policy 

Unlike the proposals of a strict balanced budget, the fiscal policy in Chile allows the automatic stabilizers in operating as well as the fluctuation of overall budget balance with the country’s economic state. The Chilean government run surplus if there is above the potential rise in revenues and output, while runs a deficit if there are below-potential revenue and production. Therefore, debt acts as a protector for the unforeseen economic activity deviations (Montecinos, 2017). Thus, with the growth in the economy, such a Chilean fiscal policy implies that there should be a gradual fall in the debt-to-GDP ratio. 

Chile’s Tariff Policy 

Chile is being commended for its overall transparent, predictable and open trade as a result of its tariff policy. Besides, the commitment and openness of Chile’s tariff policy to the multilateral system have been influenced by its significant contribution to the WTO work. This tariff policy has allowed Chile in undertaking the legal as well as institutional reforms because of its consent to the OECD. Moreover, Chile’s tariff policy has allowed it in maintaining a robust commitment to the multilateral trading system, in specific to the post-Bali process as well as the Doha Development Agenda (Hojman, 2017). Importantly, through its tariff policy, Chile has implemented its measures of trade facilitation including the establishment of Customs and Tax Courts, single window implementation for exports, and the customs procedures standardization for specific destinations of customs. 

Chile’s Tax Policy 

The Chilean tax policy requires that capital gains be subjected to standard rates of taxation unless special provisions establish the exemptions. Examples of such exceptions include those that pertain to gains on the sale of monetary correction on capital repayments or shares/quotas or even those that are derived from the listed corporations and first public offerings’ transactions. Besides, Chilean tax policy states that expenses should be deductible for net operating losses, depletion and depreciation, and payment to foreign affiliates. However, the interest expenses can only be deducted when the paid interest meets the requirements established by the income tax policy (Hojman, 2017). Under such occurrences, charitable donations and bad debts can be deductible. 

References 

Hojman, D. E. (2017). The Political Economy of Chile's fast economic growth: An Olsonian interpretation. Public Choice, 111(1/2), 155. 

Montecinos, V. (2017). Economic reforms, social policy, and the family economy in Chile. Review Of Social Economy, 55(2), 224-234.