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Hernán Cheyre, Executive Vice-President of CORFO

Hernán Cheyre has the archetypal curriculum vitae of the political elite that came to power in Chile on March 11 led by President Piñera. He was educated at Santiago’s Pontifical Catholic University, has a Masters in Economics from the University of Chicago and has worked for the right-leaning think tank Libertad y Desarrollo. He was also one of the founders of the Chilean consulting company Econsult and general manager of the Chilean office of rating agency Fitch. Now he’s moved into the public sector to head up the state’s economic development agency CORFO. Here he talks to bUSiness CHILE about the challenges ahead.

We’ve seen a change of government and a change of economic philosophy. How has CORFO changed in these first few months since the centre-right assumed power?

We’ve had to concentrate on how we can best help those who were affected by February’s earthquake, and there are essentially three ways in which we’re doing that. The first is by giving extra money to Sercotec, the CORFO body charged with helping the smallest businesses in Chile, those with annual sales less than US$ 95,000. Sercotec is using subsidies to help those businesses repair damage caused by the earthquake, and to provide working capital. These are collaborative subsidies: for every peso that Sercotec puts in, the company has to make a contribution too. In total, these subsidies are worth US$ 40 million and will help 5,000 small businesses.

And the bigger businesses?

The second way we’re helping is through the CORFO reconstruction hedge fund, which is a guarantee fund. Banks issue credits to Chile’s small and medium-sized companies (SMEs) and CORFO guarantees the loan. These guarantees cover between 50% and 80% of the total loan. The smaller the company, the higher the percentage and the longer the period of credit. This is a US$120 million fund and we estimate it will generate loans of around US$ 1 billion, which will help around 15,000 SMEs.

The third pillar of our plan is the extra funding we’re giving to the country’s Mutual Guarantee Societies (Sociedades de Garantía Recíproca, or SGRs in Spanish), which are an alternative source of guarantees for small businesses. They help businesses get credit at more competitive rates.

But these aren’t new initiatives. These financial instruments all existed before the earthquake.

That’s true, but there’s been a huge increase in demand for these services as a consequence of the earthquake.

Has CORFO’s budget been increased to meet that demand?

Our budget remains the same. However, we’ve shifted resources within it to give priority to those hit by the earthquake.

What other changes will we see in CORFO over the next four years?

At the moment CORFO has nearly 100 different programs but there’s no mechanism in place to measure just how effective each of these programs is. That’s something we want to address and we’re working on it already. In broader terms, CORFO has to step on the accelerator in terms of fomenting venture capital and innovation. As President Piñera outlined in his May 21 speech, Chile faces a big challenge - 6% annual growth in order to become a developed country by 2018. We need a big increase in investment in research and development, we need to promote innovation and we want to increase the number of entrepreneurs in Chile by 100,000 over the next four years. These are ambitious goals, and CORFO aims to be at the forefront of achieving them.

This is a government that believes in the free market and is by nature suspicious of state subsidies. How does that square with CORFO’s role as a provider of subsidies?

The two can be reconciled, there’s no contradiction here. Even in a free market there’s always the need for corrective measures – maybe because of an asymmetry of information or the lack of the critical mass that would be vital to make a project viable. At CORFO we don’t want to distort the free market. We just want to make sure it operates smoothly. Above all we want to concentrate our efforts on those areas where a correction is needed, where state intervention is justified.

Should we expect more loans and fewer subsidies from CORFO under the new government?

A lot of CORFO funding is given in the form of subsidies, which means it is never repaid. We think it’s important that in cases where a project is successful and bears fruit, CORFO can recoup its money so that it can be reinvested in similar projects in the future. Also, in the past some subsidies have been used unnecessarily, for example to buy fixed assets. Rather than subsidizing the purchase of fixed assets, it would be much better for CORFO to focus on improving the quality of management in these companies. So, yes, we need to review the nature of our subsidies, without a doubt.

Studies suggest that entrepreneurship and innovation are weak points in Chile. Do you agree?

Absolutely. Innovation is inherently risky and it’s difficult in Chile to raise capital for it. CORFO can help to some extent but it’s not enough to simply create a few financial instruments or dish out subsidies. You need to generate a whole culture of entrepreneurship, and that’s something we lack. It’s something we need to learn as children, as happens in other countries. Most studies show that entrepreneurs and innovators are held in high regard in Chile. The problem is there are a lot of obstacles in the way of would-be entrepreneurs. One of President Piñera’s pledges is to speed up the process of starting up a business or of closing a business down, and to make that process less costly.

CORFO has just offered 2,000 grants to Chileans to study English. Why?

The aim is to create a workforce of professionals who can work for the many foreign companies that are setting up in Chile and that need bilingual employees. Chile has done a lot to promote offshoring. In the last few years, and thanks in part to CORFO, around 60 foreign companies have set up in Chile and they’re using the country as a platform to offer services to the rest of the region. But to do that it’s important that people can speak English. We’ve offered 2,000 grants and within the first 10 days we had 12,000 applicants. So the thirst to learn English is definitely there.

On a personal note, how are you finding working in the public sector?

It’s very challenging, and the demands it presents are different from those of the private sector. The motivation is different too. When you have a dream in sight, as this government does – the dream of becoming a developed country by 2018 and of eradicating poverty – then that motivates you to work hard. It’s a challenge, but it’s a noble challenge, and one I’m facing with great pleasure, despite all the sacrifices involved with leaving the private sector.

Gideon Long is a freelance journalist based in Santiago. He also works for the BBC.