Chile's Risk Level Improved

Chile's economic bonanza is continuing to get the country more respect, as its foreign currency rating was lifted to A from A- by Fitch Ratings, one of the most significant risk level agencies. This puts Chile in the same sovereign risk level as Greece, South Korea and Saudi Arabia, and above China, the Czech Republic, Hungary, Israel and Malaysia. The A rating means that Chile is considered an excellent payer by the agency.

Fitch is - along with Standard & Poor's and Moody's - the rating agency with largest influence in the market. All of them have improved Chile's position in their rankings since start of 2004. According to Standard & Poor's ratings, Chile ranks ahead of countries such as Malaysia, South Korea, Hungary, Israel and Mexico. In Moody's ratings, Chile is on the same level as Hungary and Botswana. The main objective of the ranking is to measure how a country deals with its debts. Investors then have an idea about their chances of recovering their investments when buying bonds for a country.

The reasons for Chile's new rating are the improvement of its growth outlook and the current reduction of its public debt, propped up by surpluses in tax collections, according to Fitch. The head of Fitch's Latin American section, Robert Scher, said expectations for Chile's economic growth will be higher than 5 percent. Last year, growth reached 6.1 percent. Scher emphasized that there are signs that this improvement has a strong foundation, and it is probable that this above-average growth will continue in the middle term. The agency denied it had been influenced by Chile's next presidential elections in December, since there is a strong agreement between the different parties about what the economic guidance of the country should be.

Fitch said Chile was the first country to make significant market reforms 25 years ago, reforms that have improved and become stronger throughout the three governments since the end of Augusto Pinochet's dictatorship in 1990. Fitch also said it was a good sign that industrial exports in 2004 were higher than copper consignments, which indicates that Chilean firms that depend on a strong labor force still are competitive despite the peso's valuation in last year.

Source: Foreign Investment Committe