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Managing capital inflows in Chile

  • Manuel Agosin
  • Ricardo French-Davis

This paper characterizes the surge of foreign capital inflows into Chile in the 1990s, it describes the policies to deal with these inflows, and analyzes the results of the policy mix used in terms of effectiveness with which flows were managed and effects on growth and investment. About 60 per cent of the flows have been foreign direct investment (FDI), the remainder being a mix of portfolio inflows, short-term credit, and longer-term borrowing, basically by banks and large domestic firms. The policies adopted have included the imposition of an unremunerated reserve requirement on all financial inflows (excluding FDI), active sterilized intervention on foreign exchange markets to prevent undue appreciation of the peso, and the use of a sliding exchange rate band. These policies appear to have prevented an even larger surge of foreign capital, have kept real exchange rate appreciation within bounds, and are partly responsible for the country’s positive growth performance. However; they have

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Article provided by University of Chile, Department of Economics in its journal Estudios de Economia.

Volume (Year): 24 (1997)
Issue (Month): 2 Year 1997 (December)
Pages: 297-326

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Handle: RePEc:udc:esteco:v:24:y:1997:i:2:p:297-326
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