Investor confidence in Chile remains high as it enters its third century of independence as a country with the highest credit rating in Latin America, the risk rating agency Standard & Poor’s said in a report.
The report, “A look at Chile’s creditworthiness as it celebrates 200 years of independence,” prepared to coincide with the country’s bicentennial celebrations by analyst Joydeep Mukherji in New York said that a low debt burden, a strong political consensus on key economic policies and the credibility of Chile’s public institutions, along with a track record of stable economic growth make Chile the safest place to invest in the region.
“Many years of prudent economic management have strengthened Chile’s fiscal and monetary flexibility,” Mukherji told S&P. “That, along with a flexible exchange rate and a central bank with a track record of credibility, sustains investor confidence.”
The Chilean economy grew by 3.7 per cent in 2008 but then shrank 1.5 per cent in 2009 as the global financial crisis led to a sharp fall in investment and external demand.
However, the credit rating agency saw no reason to change the country’s credit ratings, as the country passed through the recession in better shape than “many other sovereigns” and better than it had done in the past, Mukherji said.
In July, the economy grew by 7.1 per cent, according to the Central Bank of Chile, marking a fourth consecutive month of robust growth.
“Many years of prudent fiscal policy has allowed the Chilean government to accumulate surplus funds that were available for stabilizing the economy during the downturn,” the analyst said.
Credit ratings prepared by companies such as Standard & Poor’s are used by investors to realise the level of risk of investing in a country. S&P’s highest rating is AAA, a rating held by countries such as the United States, the United Kingdom and Germany as of April this year. Chile’s rating is A+ with a stable outlook for long-term foreign currencies, according to S&P ratings from August.
Mukherji noted that 2010 has been a momentous year for Chile, with three major events defining it. The election of President Sebastián Piñera, the country’s first center-right leader in 20 years, the 8.8 magnitude earthquake of February 27 and the celebration of 200 years of independence in September.
The change of government could result in a change of leadership style and economic priorities more than dramatic policy adjustments, Mukherji said. Piñera’s government is pushing for greater efficiency, removing obstacles and bureaucratic procedures that delay and deter entrepreneurs.
Meanwhile, the analyst noted that the Chilean economy had rebounded after the earthquake quicker than most analysts had expected and the economy could grow by five per cent or slightly more this year.
“Financing the reconstruction should not pose a burden on the government because of its very low debt burden and ample fiscal flexibility,” Mukherji said.