Chile Business Forecast Report Q4 2010

Executive Summary 7
Brushing Off The Aftershocks
Chapter 1: Political Outlook 9
SWOT Analysis 9
BMI Political Risk Ratings 9
Domestic Politics 10
Legislative Gridlock Portends Policy Continuity
Chiles political risk profile has taken its first major blow since Januarys presidential election following congresss rejection of
President Sebastián Piñeras proposed mining tax reforms on July 8.
Table e: Political Overview 11
Long-Term Political Outlook 12
Political Stability The Name Of The Game
The election of the first centre-right government for two decades has caused a pronounced shift in Chilean politics that could
open the door for the political landscape to become increasingly fractured over the long term.
Chapter 2: Economic Outlook 17
SWOT Analysis 17
BMI Economic Risk Ratings 17
Economic Activity 18
Weak Q1, But Better Ahead
While Chiles Q110 real GDP data clearly reveals the impact of Februarys catastrophic earthquake on economic activity, our
core views on the countrys economic outlook remain in place.
Table e: ECONOMIC ACTIVIT Y 18
Economic Activity II 20
Upgrade Reinforces Stable Risk Profile
The decision by ratings agency Moodys to upgrade Chiles long-term foreign currency issuer default rating to Aa3 is an
encouraging development and highlights that the fundamental improvement in the countrys risk profile is structural in nature.
Balance Of Payments 21
Capital Goods Imports To Narrow C/A Surplus
Chile maintains a favourable balance of payments profile, though we stress that the ongoing uptick in demand for
capital-intensive goods required to expand productive capacity following Februarys earthquake will see the current account
surplus narrow to 0.3% of GDP in 2010 from 2.6% in 2009.
Table e: CURRENT ACCOUNT 22
Exchange Rate Policy 23
Oil-To-Copper Implies Further CLP Depreciation
Our near-term outlook on the Chilean peso is decidedly bearish.
Table e: EXCHANGE RATE 23
Banking Sector 24
Well Poised To Support Recovery
We maintain a relatively optimistic outlook on the Chilean banking sector and believe that the industry is well poised to
support the countrys broader macroeconomic recovery.
Regional: Sovereign Risk
Ratings 26
Political Risk Making The Difference
Rising political risks are starting to weigh heavily on the sovereign credentials of some Latin American economies,
reinforcing our view that the economies most likely to experience a credit event are those with the weakest political
risk profiles.
TA BLE: LATIN AMERICA ABILIT Y TO PA Y 26
Table e: LATIN AMERICA WILLIN GNESS TO PA Y 28
Chapter 3: 10-Year Forecast 31
The Chilean Economy To 2019 31
A Strong Case For Steady Progress
A stable political outlook and sound economic fundamentals position Chile for steady economic progress, and underpin
our view that Chiles economy will head towards developed state status by 2019.
Table e: Long-Term Macroeconomic Forecasts 31
Chapter 4: Business Environment 33
SWOT Analysis 33
BMI Business Environment Risk Ratings 33
Business Environment Outlook 34
Table e: BMI Business And Operation Risk Ratings 34
Institutions 35
Table e: BMI Legal Framework Rating 35
Infrastructure 36
Table e: Labour Force Quality 37
TA BLE: LATIN AMERICA , ANNUAL FDI IN FLOWS 38
Table e: Trade And Investment Ratings 39
Operational Risk 40
TA BLE: TOP EXPORT DESTINATIONS , 2000-2008 40
Chapter 5: Key Sectors 41
Pharmaceuticals 41
Table e: Chile Pharmaceutical Market Expenditure, Historical Data and Forecasts, 2005-2019 43
Infrastructure 44
Table e: Construction Industry — Historical Data And Forecasts, 2008-2014 45
Chapter 6: BMI Global Assumptions 47
Global Outlook 47
Global Recovery To Falter In 2011
TA BLE: GLOBAL & REGIONAL REAL GDP GROWTH 47
Developed States
Table e: REAL GDP GROWTH – CONSENSUS FORECASTS 48
TA BLE: GLOBAL ASSUMPTIONS 48
Emerging Markets
Table e: EMERGING MARKETS AGGREGATE GROWTH 49