Chile has been historically isolated as a result of its geographical and economic characteristics, with roughly 98% of all its imports arriving via ports. However, in the past 30 years the country has undergone a massive change, finding itself now in the vanguard of the Free Market movement - being a world leader in the signing of Free Trade Accords - and shedding its former protectionist economic policies.
As a result Chile has been at the forefront with respect to many Latin American countries when it comes to globalization and accessing worldwide markets. This in turn, has led to Chile sustaining economic growth similar to other emerging economies.
As part of this opening of the country to foreign markets the Chilean government recently redistributed political power on a regional basis with the incorporation of two new regions, the Arica-Parinacota and Los Ríos. The idea behind the creation of these two new regions was to foment revenues in tourism, mining, agriculture and communications, while at the same time aiming to empower the regions and decentralize power from the capital. The new regions were approved Mar. 15, 2007 by President Michelle Bachelet.
The government's policies have translated in strong economic growth, with the GDP in 2007 coming in at 5.2% versus 4% in 2006. On the downside, the country is feeling effects from the current global economic malaise, with unemployment hitting 7.2% in 2007. Strong economic growth has also led to a sharp rise in inflation, up from 2.6% in 2006 to 7.8% in 2007 on the back of higher petroleum prices and the ripple effect on food prices, coupled with adverse weather conditions.
It should be noted that Spain's economy is also going through a rough batch, with unemployment hitting 9.6% for the first quarter of 2008 - the highest it's been in three years - the third consecutive quarter of rising unemployment. This sharp increase in unemployment has even stoked concerns the Spanish government may run-out of funds to pay unemployment benefits in September.
Still - and despite the domestic nature of current Spanish press with respect to the collapse of its construction sector and rising unemployment - the general perception of Chile in Spain is one of a Latin American country that has undergone a rigorous economic policy that has led to its being considered as an emerging country with a relatively low country risk.
In a roundabout way Chile could benefit from a struggling Spanish economy - which has been built on EU subsidies and a booming construction sector - as many Spanish companies feel they must diversify and look outside their borders for growth. Of particular interest are Spanish construction companies which have been heavily diversifying in Spain into the energy sector. Spanish companies are particularly interested in projects in Latin America, Middle East, Eastern Europe and Asia.
In Spanish business circles it is commented that Chile's economic stability - in sharp contrast to that experienced in other Latin American countries - has made the country attractive for investment. While mining remains a sector of interest, Spanish companies are also attracted to the banking, telecommunication and electricity sectors.
Despite the strong rise in Chile's inflation, Spanish analysts see continued economic stability in that country, with sustained economic growth, albeit at lower rates than in previous years given the current global economic downturn.
In general, it is viewed, however, that growth will most likely come from Chile's continued emphasis on exports and a drive to entice foreign investment. To further encourage foreign investments Chile must continue to ensure not only the liberalization of its markets and financial transparency, but seek to optimize its Free Trade agreements.
That said, it is often mentioned in Spain that the downside of Chile's economic growth is that wealth is not being equally divided among the Chilean population. More concretely, the difference between Chile's wealthy and its poor is becoming increasingly pronounced. In this age of corporate responsibility, and with its growing importance in the Spanish corporate world, such discrepancies in wealth distribution could come into play with respect to future investments, either in positive or negative light.
With respect to Trade, Chile exports more than it imports, with energy representing around 63% of Chile's exports in 2006, while it only imported around 25% in the same period.
Those figures are misleading, however as Chile has limited domestic energy resources, with the country importing the majority of its energy needs. Chile has shown a reliance on natural gas exports, in particular those coming from Argentina. Since 2004 - when Argentina began restricting its natural gas exports - Chile has been revising its energy policy.
Outside of energy, Chile also exports significant agricultural goods (fruits and horticultures), representing around 20% of all exports in 2006, while it only imported 7% in this category for the same year. In 2006, manufacturing goods represented around 10% of all of Chile's exports, while it imported close to 60% in the same category of goods.
Or in other terms, Chile's export structure is basically divided equally between industrial (45%) and mining (45%) and the remaining 10% in agricultural goods.
Within the industrial products, the largest export items are cellulose, methanol and chemical products. Of increasing importance in the last decade are forest products, salmon and wine.
It should be mentioned that while Chile is attempting to diversify away from its dependence upon the semi-manufacturing of copper - a product that represented 60% of the country's exports in the 1970s - to 35% in 2004, this product is still overly represented in the country's export basket and the Trade Balance as a result of global demands and rising market prices for this commodity.
Copper exports in 2007 represented roughly 45% of the total exports on a Trade Balance basis.
Chile exported $1.3 billion to Spain in 2007, down slightly from almost $1.4 billion in 2006. By comparison, Chile exported $8.4 billion in 2007 to the United States, slightly down from $8.9 billion in 2006. With respect to imports, Chile received $845 million in goods from Spain in 2007, up from $708 million in 2006. With respect to the U.S., $7.3 billion of North American goods were imported in 2007, up sharply from the $5.6 billion Chile imported in 2006.
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