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Briefing

Chile: External Accounts

Appears in: Latin America, Macroeconomy, Markets, Chile, Capital Flows, FDIs, Capital Controls, Currencies, Current Account, Trade and External Balance

Critical Issues

Background:

Since the onset of the global financial crisis, the Chilean peso (CLP) has generally tracked U.S. markets. Chile is the world's largest copper producer and the peso is often directly affected by international copper prices. The peso was introduced to replace the escudo in 1975, as one plank in the sweeping economic changes implemented during the military dictatorship of General Augusto Pinochet. In 1983, Chile abandoned its centavo coins associated with the peso altogether amid skyrocketing inflation rates. The CLP now floats freely against the U.S. dollar.

After surpassing high levels near the end of 2008 due to increased risk aversion worldwide, the CLP gained significantly during 2009, driven by the recovery of copper prices. Aside from copper prices, however, the CLP will be challenged by Chile’s robust economic recovery and positive outlook, in the context of the weak performance of advanced economies and increased capital inflows to emerging markets.

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