CHILE UPDATES
Have you ever been to Sanhattan?
For years now Chile has been known in some circles as the Switzerland of South America and as time goes on the term only seems to become more and more fitting.

The first time international travelers visit Santiago’s primary financial district, often times referred to as Sanhattan, the most common response is….

“I had no idea parts of Latin America looked like this.”

Clear rule of law, conservative economic policy and a steadily growing economy are just a few of the reasons Chile stands out not just in the Southern Cone but in Latin America as a whole.

While most resource rich nations squander their wealth on ineffective social programs and subsidies, Chile takes a much longer term approach.

Over the last few decades Chile has been quite reliant on copper exports to keep the local economy running so politicians decided to set up an economic stabilization fund.

Instead of just hoping the good times would last forever and then relying on printing presses and bailouts to get through a downturn, the government had the discipline to actually put some money for a rainy day.

Eventually, after they’d accumulated billions upon billions of dollars, they started working on other ways to invest in the future and began naming priorities which they thought would help them
excel in the 21st century.

At the top of the list were four very specific things;

Infrastructure, technology, entrepreneurship and free market policies.

It didn’t happen overnight but fast forward to today and these initiatives can been seen all throughout the country.

Wildly successful entrepreneurship programs, groundbreaking advancements in medicine, upgrades for the country’s main shipping port and airport, brand new international highways…

Just last month representatives from many of the world’s largest companies where in Santiago for Chile’s annual international investment conference.

The question on the table wasn’t if they were going to be setting up a branch in Chile one day.

Instead it was either where they’d be opening their first office or when they’d be expanding their existing operations in the country.

Just a couple days ago, US national debt hit an all time high of $22 TRILLION dollars and while the official numbers haven’t been released yet, it looks like that’ll end up coming out to a grand total of about 107% of 2018’s GDP.

And based on the most recent FED moves it’s become clear that the American economy has no way of dealing with interest rates that are any where near free market levels.

Meanwhile Chile maintains one of the lowest debt to GDP ratio’s in the world and finds more and more ways to market it’s comparative advantages to the international business community.

15 or 20 years ago, offshore investing was largely considered to be an aggressive high risk/high reward strategy.

These days, if you haven’t moved at least a portion of your life savings into a stable, high growth, low debt jurisdiction yet, it might be time to start doing your homework on the matter.

Yesterday afternoon Chile’s new president, Sebastian Piñera, was sworn into office at the congressional building in the port city of Valparaiso.

While the ceremony was relatively uneventful, the main drama of the day was based around a few words he had with the Chief of Police Bruno Villalobos.

After decades of being considered the least corrupt police force in Latin America, Chile’s Carabineros (the term they use for police in Chile) have become the butt of many jokes while under the watch of Chile’s last president Michelle Bachelet.

First there was the situation where the remunerations department for the police force got caught siphoning off millions of dollars’ worth of governmental funds.

After that the Carabineros were accused of tampering with evidence in one of Chile’s southern regions that is plagued with conflict between the indigenous Mapuche people and the more recent inhabitants.

Finally just a couple weeks ago a police officer was caught engaging in petty street crime on security camera at a shopping complex.

I don’t know if I should say it’s par for the course, but it does run consistent with the previous presidents general modus operandi.

Bachelet, who served as president from 2014 until yesterday, had an incredible track record of incompetence and speaking out of both sides of her mouth.

She won the presidential election of 2013 based on a platform that promised to end government corruption just months before her own son was involved with an insider information scandal in the city of Rancagua.

Other aspects of her presidential platform in 2013 included creating an updated version of the Chilean constitution (something which she never got around to) and a more egalitarian society (which really translated into stifled economic growth due to higher taxes).

Luckily, while Piñera (the new president) certainly has his own share of critics, he’s also known much better known for his understanding of business and economics and for getting things done.

Within less than 24 hours of the taking office yesterday and uttering the words “We’re going to talk about this matter” to the Chief of Police, the commissioner resigned from his position and publicly asked for forgiveness for tarnishing the Carabineros reputation.

Between Piñera’s more business friendly policies and a copper price over $3.00 USD/pound, most economic forecasts are predicting the annual GDP growth rate for Chile in 2018 to be nearly twice what it was in 2017.

Even more interesting than this year’s projected GDP figures though is that this is the first time in many years that both Chile and Argentina are being led by free market oriented governments at the same time.

Just before Piñera was sworn in yesterday, he met with Argentina’s current president Mauricio Macri.  

Macri, who had been showing support for Piñera since before he won the most recent election, came not only to congratulate Piñera and tell him “good luck” on his coming term but also to reiterate the fact that now is the time to truly take advantage of the potential that the region presents.

Improving infrastructure and increasing investment and commerce along their common border were listed as their top priorities.

If those words were coming out of an average politician’s mouth, they really wouldn’t mean much.

Both of these men have a pretty good track record in their political careers for living up to their word and following through with their plans.

While protectionist policies drive the prices of goods and services up in some parts of the world, there are going to be some very interesting opportunities on the table as these Southern Cone countries work to reduce restrictions and increase integration.
More on those coming soon.
 
Sincerely,
Darren Kaiser
  
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Chile Property Consulting
with Darren Kaiser