The performance of the Chilean economy during the year 2000 was less positive than expected. Although the world economy recorded the highest growth in recent years–close to 4.5–the foreign scenario was not favorable. Our region continued to be affected by political problems–very serious in some countries–and by the null recovery shown in the Argentinean economy, which deteriorated country-risk perceptions and determined a much lower capital inflow than the one recorded in 1999. Meanwhile, a high amount of Chilean investment abroad was maintained, determining negative investment flows. This was probably influenced by reduced domestic interest rates. The increase in copper and other export product prices was counterbalanced by the explosive oil price rise, resulting in an increase of only close to 1% in terms of trade.

Within this context, GDP grew close to 5.5%, at least half a point less than expected at the beginning of the year, while aggregate demand expanded by a little less than 8%, not recovering its 1998 level. Due to this, and in spite of the favorable growth, the perception in many sectors was that the levels of activity were still lower than those seen two years ago. The slightly slower recovery in labor-intensive sectors resulted in a moderate decrease in the average unemployment rate, going from 9.7% in 1999 to close to 9.0% in 2000.

Inflation closed the year at 4.7%. The increase is largely accounted for by fuel price since the inflation trend remained within the Central Bank’s target range of around 3.5%, although inflation did also show a rising trend during the year.

On the positive side, exports recorded the highest growth rate since 1995 (around 18%), with more than US $18 billion. Imports recovered from the strong fall registered in 1999, with a growth close to 20%; if the effect of oil purchases were not considered, however, growth would only amount to 15%.

The strong export growth permitted a high trade balance surplus and a very reduced current account deficit of close to 1.5% of GDP.

The perspectives for 2001 considered a foreign scenario that deteriorated in recent months due to the economy deceleration in the United States, the high price of oil, and problems in the countries in the region. Expectations regarding capital inflows are for them to remain at a relatively reduced level, affecting investment growth. In general, results similar to those for the previous year are expected, with a 5.5% GDP growth and a slightly higher spending growth. This would enable a moderate reduction in the unemployment rate, which would remain above the levels recorded before the crisis. Inflation should record a decreasing trend based on the corresponding oil price trend decrease, although the contrary should likely be the case with underlying inflation, which will start to show the effects of the dollar price increase.

Exports should continue to show a positive performance, remaining as the principal growth engine and constraining the current account deficit between 2% and 2.5% of GDP, for which no foreign financing problems are projected despite reduced capital inflow.
To sum up, Chile will continue to exhibit the best results in the region as was observed during the year under review. The business climate could significantly improve with a more favorable foreign scenario and greater clarity concerning the economic policy for the following years, reaffirming the consensus regarding the basic guidelines of the market approach.

The Banking Industry

The significant aggregate spending adjustment in 1998 and 1999, together with the slow recovery process during the year under review, maintain the banking industry in a state of relatively low lending activity, except for foreign trade business transactions which benefited from the more favorable foreign environment. Average total loan growth – net of leasing loans–has only attained 1.5%. Spending and GDP recovery have not been adequate to improve the overdue portfolio condition, and said index remains at the same level of 1.8% or 1.9% seen during the economic adjustment of mid-1999.
Despite this environment, the operating balance sheet shows ongoing expense control and a financial spread increase during the second semester, thus improving the industry’s overall results. Return on equity rose from 9.4% in 1999 to 12.4% in 2000. Finally, the banking system’s perspectives are generally favorable. A more stable recovery of the activity together with risk moderation are expected. Expense control and efficiency will continue to be strategic pillars, and the banking system’s development will be based on intensive and exacting competence, in which technological change will have a leading role in the success of participants.