With soaring commodity prices and strong demand for copper, of which Chile is the world's top producer, the country continued its reign as one of the darling economies of South America. Despite a massive earthquake that rattled the country in February, Chile is on an upswing....
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With soaring commodity prices and strong demand for copper, of which Chile is the world's top producer, the country continued its reign as one of the darling economies of South America. Despite a massive earthquake that rattled the country in February, Chile is on an upswing. "The economy is doing very well, booming really," says one attorney. With robust growth and a very respectable debt-to-GDP ratio, attorneys are justified in their optimism. Market feedback earmarks the mining, fishing, energy, and retail sectors as being particularly active over the past year.
Further cementing the country's economic progress, the Organisation of Economic Cooperation and Development (OECD) accepted Chile as its 31st member in May 2010. The approval was three years in the making, and marked the first time a South American country and second time a Latin American country (after Mexico) has been accepted into the Paris-based forum. Chile's induction can be seen as an ongoing commitment by the Chilean government to continue market-friendly policies promoted by the organisation. This may prove important, as rapid growth can create separate headaches.
With rising domestic demand accompanied by a breakneck growth rate in the first quarter of 2011, the issue moving forward may be whether the economy is at risk of overheating, as the World Bank has suggested. Additionally, inflationary pressures created by higher commodity prices will need to be kept in check by tight monetary policies -something the government has so far sought to confront by aggressively raising interest rates.
The government's "pro-growth agenda", as one attorney calls it, has helped market efficiency. "There is a drive to create more competition in the marketplace," says one attorney. The recently enacted MK3 Law, a capital markets reform measure has made things easier and created more flexibility. It follows earlier reforms that sought to liberalise the country's capital markets. The newest initiative introduced exchange trade funds (ETFs) to the Chilean markets and gives tax breaks to foreign institutional investors.
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