Macroeconomic Outlook

1. Macroeconomic Outlook BALAS April 07th 2017 ALEJANDRO MICCO A. Undersecretary of Finance

2. Outline

3. Outline

4. Chile at a glance Source: Central Bank, IMF, National Statistic Office , Ministry of Social Development.

5. Chile an Open Economy • Trade Agreements: 25 – 64 countries – 86% of world GDP • : NAFTA – EU – China – Japan – TPP

6. Chile an Open Economy • Double Taxation Avoidance Agreements (DTAA ) 79%

7. Chile a Sound Economy • Independent Central Bank • Inflation Targeting • Fiscal Rule • Structural Income • Independent Committees defines LT GDP growth and LT Price of copper • Sound Regulatory System • Global Competitiveness Index (Rank 2015) • Soundness of banks: 11 / 144 • Regulation of securities exchanges 23 / 144 • Financial market development 19 / 144

8. GDP Growth - Exports(YoY, percentage) Source: Central Bank of Chile

9. International Backdrop Price of Commodities and Copper (Index 2005=100, USD/lb) Source: Central Bank of Chile and IFM

10. International Backrop World trade growth (YoY rolling quarter, percentage) Commercial Policy G20 members(Number of actions affecting trade) Fuente: WTO, Global Trade Alert, CEPR Note: Global Trade Alert provides real-time information on state measures taken that are likely to affect foreign trade. In addition, it identifies trading partners likely to be harmed by these measures.

11. GDP and imports of chilean trading partners (real YoY, percentage) Source: WTO, World Bank y Bloomberg. Nota: 2016 estimated with actual data up to the third quarter. Chinese imports estimated on the basis of nominal data.

12. External Adjustment Real exchange rate (Pesos of February 2016) Current account deficit (Percentage of GDP) Source: Central Bank of Chile and central banks of each country.

13. Monetary Policy, Inflation and Exchange Rate

14. Real Exchange Rate(local currency/dollar, indexjanuary 2015=100) Source: Central banks of each country

15. Non-mining GDP Chile and Peru(Real YoY, percentage) Source: Central Bank of Chile, INEI Perú

16. Outline

17. Fundamental principles of fiscal policy Permanent expenditures must be financed with permanent incomes • Social policy Tax Revenues Efficient –Focalized- and Transparent spending Fiscal Responsibility law (2007) Transparency law (2016)

18. Fiscal Balance Central Government Balance (% GDP) Fuente: Budget Office

19. Tax Reform 2014 and Fiscal Balance Additional Collection (% of GDP) • The Law N°20.780 of the Tax Reform (september 2014) and the Law N°20.899 Simplifications of the Tax Reform (february 2016) has the following objetives: • Increase the tax burden by 3% of GDP, to finance permanent expenses with new permanent revenues. • Advance on tax equity by improving income distribution. • Introduce more efficient savings and investment incentives. • Reduce evasion and avoidance. Taxes rate according to regime

20. Fiscal Revenues Fiscal revenues (Percentage of GDP) Source: Budget Office Note: OthersProvisionaltax, donations, propertyincome, operatingincome, othersincome and sale of fixedassets

21. Net tax revenue of the Central Government 2016 Fuente: Budget Office

22. Forecast Net TaxRevenueBudget Law 2017(millons of pesos 2017 and % YoY) Fuente: Budget Office

23. StructuralConsolidation(% of GDP) Note: Excludes extraordinary revenues from capital registry in 2015 and 2016. Source: Budget Office.

24. Outline

25. Productivity Enhancing Policies Energy policy Productive diversification and innovation Infrastructure development and logistics State efficiency Better financing Productivity Education Market competitiveness

26. News Opportunities

27. Global Trade in Goods and Services

28. Export of Services Trade in goods have been flat post the 2008 crises Trade in services have been increasing • In particular others services Chile has comparative advantages

29. Export of Services Time Zone Chile has comparative advantages • The highest educational coverage and quality in LAC. • First in LAC in PISA ranking –Lecture, Math., Sciences- • 2 top ten Universities in LAC • The highest coverage of (No) Double Taxation Agreements. 62%-80% of world GDP. • The first or second best technological infrastructure in LAC (Uruguay)

30. Education Enrolment ratio – pre escolar education (%) Performance of secondary students (PISA mean scores, 2015) Note: The enrolment rate is expressed as a percentage of the official school-age population corresponding to the same level of education. The population used is between 0 and 4 years. Source: UNESCO Institute for Statistics and OCDE, PISA 2015.

31. Education Public cost of the educational reform (Percentage of GDP) Source: Budget Office

32. Education Public expenditure on pre-escolar education per child (Annual average, thousands pesos of 2016) New institutionsforquality and mandatorycertificationfor establishments. • 19.000 new vacanciescreateduntilnow and goal of 76.000 to 2018. Note: Average per child calculated on the population between 0 and 4 years. Source: Budget Office and INE.

33. Education Public expenditure on educational career (Percentage of GDP) Effectiveness in classroom depends on attract the best people to teach and encourage their improvements. • To improve salaries and workingconditionsthatrecognizeworkoutsidetheclassroom. Source: Budget Office

34. Education Advances in TertiaryEducation and boostTechnicalEducation Coverage: 15 New TechnicalCenters Two new regional universities, O’Higgins and Aysén. Financing 220.000 studentswithoutfees and 140.000 studentswithscholarship “Nuevo Milenio” for2017, ensuringaccess to tertiaryeducation to the 50% most vulnerable of thepopulation. Nota: Number of beneficiaries corresponds to the last estimate of allocations according to MINEDUC.

35. Thankyou April 07th 2017 ALEJANDRO MICCO A. Undersecretary of Finance