Chile Economic Analysis Essay

Submitted By mpiccinato
Words: 8711
Pages: 35

Chile
A Case Study

Submitted to:
Professor Mohtadi in partial fulfillment of the BMIB course
Global Economics

Hult International Business School

Submitted by:
Julia Kim
Marco Piccinato
Monica Ramirez
Takako Omura
Marcus Tralla
Sergio Zagatta

Boston, Massachusetts,
March 23, 2014
TABLE OF CONTENTS
TABLE OF CONTENTS 1
TABLE OF EXHIBITS 2
COUNTRY PROFILE 4
COUNTRY ANALYSIS 7
Trends 7
Monetary Policy 9
Fiscal Policy 10
Social Policy 11
Education 11
Health 12
Pension system 13
Trade Policy 15
Exchange Rate Policy 17
Strengths 18
Weaknesses 22
Opportunities 24
Threats 26
CONCLUSION 31

TABLE OF EXHIBITS
Exhibit 1 Population Growth Rate 32
Exhibit 2 Unemployment Rate 32
Exhibit 3 Interest Rate 32
Exhibit 4 Exchange Rate CHP vs USD 33
Exhibit 5 Historic Copper Prices 33
Exhibit 6 Chile Trade Agreements 33
Exhibit 7 GDP Annual Growth Rate 34
Exhibit 8 Trade Balance 34
Exhibit 9 Exports to countries and Imports from countries 34
Exhibit 10 Tax System 35
Exhibit 11 Chile’s Tax System 35
Exhibit 12 Chilean students in the United States (2000-2013) 35
Exhibit 13 Total expenditure on health (as % of GDP) 36
Exhibit 14 FDI Split per Industry 36
Exhibit 15 Global Competitiveness Index 37
Exhibit 16 GINI Income Inequality Index 37
Exhibit 17 International Tourist Arrivals 38
Exhibit 18 Chile’s Export of woodchips by countries 38
Exhibit 19 Japan’s Import of woodchips by countries 38
Exhibit 20 Region Heat Map (debt/GDP) 39
Exhibit 21 M1, M2, M3 (% y/y) 39
COUNTRY PROFILE
Chile is in the southern part of South America, it is a narrow strip of land between the Andes Mountains in the East, the Pacific Ocean in the West and a small part of the South Atlantic Ocean. It is bordered by Argentina in the East, and Peru and Bolivia in the North. It is the 6th biggest country by area (743,821 sq. km) in South America.
About 80% of the land in Chile is made up of mountains. This explains the richness in natural resources, especially in the northern Atacama Desert which exhibits rich minerals including: copper, nitrates, timber, iron ore, precious metals and molybdenum. In the South, forests and lakes dominate the landscape. Off the coast, peninsulas and islands provide a scenic backdrop for fishing, predominantly salmon and bass. Agricultural resources (arable land: 1.74% and permanent crops 0.6%), such as fruit crops and vineyards, are concentrated in the Central Valley where the Capital, Santiago de Chile is located.
Chile’s population was 17.5 million in 2012 with one third located in the Central Valley. Spanish is the country's official language. The growth rate of the population (0.86% - 2013) has been decreasing since 1990, due to a declining fertility rate (1.85 - 2013), directly affecting the age distribution of the population (Exhibit 1). Only 23% are between ages 0-14 while two thirds are between 15-64 years old. Chile is mostly known as an immigrant-sending country, between 750,000 and one million Chileans live abroad (about 6% of the country's population).
Chile’s overall GDP in 2013 was US$ 283 billion with a GDP per capita of US$ 21,310.1 Its growth rate slowed down to 4.2%, which is still higher than other economies within the region in 2013. Two of Chile’s most important sectors of their economy are services and trade, which together constitute 60%2 of the GDP.
In 2013, Chile’s average unemployment rate dropped to 6%1 (Exhibit 2) - the lowest in almost five years – and was below the average of the Organization for Economic Co-operation and Development (OECD) of 7.6%.3 These figures indicate a significant recovery in the job market. The human developing index (HDI) has increased during the last 15 years. Chile is currently ranked 40th worldwide and is the only Latin American country in the top 50. This was caused by changes in Chile’s health and education systems.
The Central Bank’s monetary policy focused on keeping the inflation rate at 3% plus or minus one percent. The real interest rate was at 5% over…