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As part of the government’s plan to finance the reconstruction, the Republic of Chile issued US$1.5 billion in 10-year bonds on international markets in dollars, as well as in pesos, in July at highly competitive rates. This indicates that global investors perceive a relatively low level of risk when purchasing Chilean bonds. 

Chile’s risk perception has been reduced over several decades reflecting the country’s successful implementation of consistent and effective macroeconomic policies. As risk has fallen, investor rewards in the form of interest rate spreads have been correspondingly reduced. An effective adjustment to the risk-reward balance has been made.

Chile’s economic policy over the last few decades has also produced changes internally including easier availability of credit, more globalized businesses and new requirements with respect to education and training. New businesses must be developed to add value to the country’s natural resource base and to generate new and better jobs for a growing population.

What does all this mean for the internal risk-reward balance in Chile?

Clearly, adjustments are needed to align both human and capital resources with new opportunities. This month’s bUSiness CHILE issue reviews some of the key areas where these changes are most urgent – including education and funding for small and medium-sized businesses.

The government of President Sebastian Piñera is working on these challenges with razor-sharp focus. Policymakers are aware that appropriate rewards need to exist for the risks that Chile needs to assume in order for the country to reach its full potential. The risks that were necessary to bring Chile to economic stability are not the same risks the country must take to reach developed country status. The market has helped to adjust the risk-reward balance; but active policymaking is required, especially in areas subject to regulation and which involve the public good. 

For example, in education it is no longer sufficient to improve rates of literacy – Chile has already reached very high international standards. What is needed is better education, particularly in math and science, which focuses on a lifetime commitment to learning. This means teachers must be better prepared and better paid – a strategy which should attract the best and the brightest, motivating some of the most promising young people to become teachers.

With respect to small and medium-sized businesses, financing has to be oriented more towards innovation, which means those businesses with higher levels of risk and greater potential for higher returns. As it stands, however, the intermediaries needed to finance such businesses and the managers needed to run them have different risk/reward parameters than those existing today. But the government is working to facilitate this transition through various means: reassessment and redesign of state development agency CORFO’s programs; refocusing ProChile’s efforts; the development of a Bicentennial Capital Markets Reform expected later this year; and the promotion of entrepreneurship through the Economy Ministry’s “Start-Up Chile” program. The shift in policy focus is being accompanied by a disciplined approach to establishing clear-cut goals and ensuring ongoing measurement of results.

The focus has, therefore, moved from macro to microeconomics. This is a very important and strategic shift in Chile’s economic policies and one that is necessary to increase productivity and take Chile to the next level of development as quickly and effectively as possible.

We at Amcham applaud the government’s plans and are committed to aligning our programs to assist in accelerating the process of improving productivity.  We firmly believe that increased investment between the U.S. and Chile and an even deeper trade relationship will contribute to adjusting the risk-reward balance in favor of higher productivity and a more rapid rate of development. Our commitment to this goal is shown through AmCham’s training program for SMEs in the value-added food sector and our plans to organize a high-level business mission to California later this year.