Chile

Growth momentum to marginally lose steam

In 2025, GDP growth will decelerate somewhat. Household consumption (63% of GDP in 2023) should expand at a slower pace, although it will remain the main contributor to growth. This is supported by the continuation of the gradual disinflationary process, combined with the easing of monetary policy (bringing the policy rate towards neutral in 2025) and a declining unemployment rate. Similarly, the increase in public spending (17% of GDP) is also likely to lose some steam, amid the need for some fiscal consolidation. Conversely, gross fixed investment (24% of GDP) should accelerate over the same period due to a weak base of comparison, relatively better financing conditions (on the domestic and external fronts) and high copper prices that will favour private investments. The trend should prevail despite the decision to increase royalties which entered into effect in early 2024.

As for lithium developments, while the government's April 2023 decision to nationalise local resources (setting that companies fetching to extract lithium will have to build partnerships with the state) may reduce attractiveness for private companies, Chile's role in the supply of the grey metal will prevent a sharp drop in new investment. In September 2024, the mining minister indicated that six priority areas had been selected for new lithium extraction projects to be led by private companies (some 20 declarations of interest for the areas have been received).

Concerning exports (25% of GDP), it should see relatively lower growth in 2025 as demand by its main trading partner, China – destination of about 39% of foreign sales – should continue to gradually lose steam. Last, while the La Niña weather phenomenon should be present in early 2025, it is expected to be of low intensity and short duration. In Chile, this phenomenon tends to reduce temperatures and the amount of rainfall. This could mean another year of drought for the country, which is a concern for agriculture (2% of GDP) and mining (11% of GDP).

Stable external account shortfall and a revenue-driven narrowing of the fiscal deficit

The current account deficit is expected to remain stable in 2025. The trade surplus (4.6% of GDP in 2023) should narrow, reflecting relatively faster growth of imports than exports. The trend would be supported by the easing of credit conditions, which would favour an increase in imports of capital goods and consumer durables (on a weak basis of comparison). It would also prevail over the expected lower energy trade deficit, in a context of lower average oil prices. On the other hand, the services deficit could narrow slightly (3.2% of GDP), helped by lower maritime and air transport costs. Last, the primary income deficit (5.1% of GDP) could also narrow slightly as profit repatriation will tend to moderate in 2025 as activity growth slows. On the financing side, foreign direct investment (6% of GDP in 2023) should fully cover the external deficit. Importantly, Chile's negative net international investment position stood at -19% of GDP in Q2 2024, softened mainly by the existence of significant pension fund investments abroad (28% of GDP in June 2024). External debt stood at 79.3% of GDP in Q2 2024, 67% of which is owed by the private sector.

On the fiscal front, the nominal deficit (including interest payments) is expected to decrease slightly in 2025. The budget law for 2025 foresees an increase in real expenditure of 2.7% in annual terms, while revenues are expected to increase by 8.5% in the same period. In the latter case, policymakers will rely on the “anti-tax evasion law” of September 2024, which is expected to raise 0.4% of GDP during its first year in force. Last, the gross public debt will remain moderate in 2025. Its internal portion (64% of the total, only from the central government) is also denominated in pesos and UF (development unit, a peso indexed to inflation), while the external portion is in dollars (68%) and euros (32%).

Chileans will go to the polls in 2025

Chile will hold general elections on 16 November 2025 to elect a new president (possible run-off on 14 December 2025) and to renew the entire Chamber of Deputies (155 seats) and the Senate (50 seats). The new head of the executive and legislature will take office on 11 March 2026. The incumbent president, Gabriel Boric of the left-wing Apruebo Dignidad party, will not be able to run for re-election as the Chilean constitution forbids a second consecutive term. Although still too early to call, the government's weakened popularity (32% in October 2024) tends to limit the likelihood of the ruling party electing a successor. Indeed, while Boric´s coalition avoided a landslide defeat, the moderate right regained ground during the October 2024 municipal and regional elections. The centre-right Chile Vamos increased the number of city halls, boosting the profile of the leading presidential contender Evelyn Matthei. Still, the decline in the government support may be attributed to the failure in dealing with insecurity (amid the rising presence of organised crime), given that Boric came to power largely on a mandate of improving social provision. He was a student leader elected after the mass protests of Q4 2019. His victory represented a change from the centrist incumbents who had presided over the country since the end of Augusto Pinochet's military dictatorship in 1990. However, the failure to rewrite the constitution (after two national parliamentary votes in September 2022 and December 2023) represented a blow to the incumbent power. Despite some initial successes, such as raising the minimum wage, reducing the maximum working week to 40 hours and increasing mining royalties, the government has struggled to pass reforms in the fragmented legislature (implying the need for negotiation with the centre and leading to the dilution of bills). After the rejection of its tax reform in March 2023, the government presented a second version in January 2024, which was finally approved in September 2024. The bill increases tax revenue by 1.5% of GDP in 2028 (from 4% of GDP initially proposed) and is to be achieved mainly through measures to strengthen compliance with tax payments (as opposed to the initial plan to increase taxes on income and wealth). Meanwhile, a pension reform (aimed at increasing coverage and the replacement and coverage rate) presented before Congress in November 2022 was still under discussion in October 2024 (in the Senate after an amended version was approved in the Lower House in January 2024).

On the external front, Chile's abundant reserves of lithium and copper, its renewable resources, conducive to green hydrogen, are particularly attractive within the framework of the European Green Deal. In December 2023, both parties decided to update their Association Agreement to include environmental clauses and encourage the EU to invest more in Chilean renewable energies. The European Parliament ratified an Interim Trade Agreement (ITA) in February 2024. The Advanced Framework Agreement will come into provisional application (pending its full entry into force after ratification by all EU Member States) when the ITA enters into force (still pending on Chile´s ratification). Still, Chile will also uphold its FTA with the United States, ensuring its alignment with the Inflation Reduction Act (IRA) through tax credits for electric vehicle manufacturers and metal producers (copper, lithium).

Last, regarding Venezuela, the Chilean government does not recognize the reelection of Nicolas Maduro in the Presidential elections of July 2024, expressing doubts about the legitimacy of the results. It is estimated that over 444 thousand Venezuelans were living in Chile in 2023, equivalent to 30% of its foreign population or 2.3% of its overall population.

Payment

Promissory notes, cheques and bills of exchange are frequently used for commercial transactions in Chile. In an event of default, it offers creditors some safeguards, including access to the summary proceeding (Juicio Ejecutivo). Under a juicio ejecutivo, based on his appraisal of the documents submitted, a first instance judge (Juzgado Civil) may order a debtor to pay at the moment of the notification – if the debtor fails to do so, his property will be seized. These documents may need to be validated by court before becoming legally enforceable.

Bills of exchange that are guaranteed by a bank are widely accepted, though somewhat difficult to obtain. They limit the risk of payment default by offering creditor additional recourse to the endorser of the bill.

Cheques, which are used more often than bills of exchange or promissory notes, offer similar legal safeguards under Juicio Ejecutivo in the event of unpaid for a cause (protesto), uncovered cheques, or closed accounts. Checks and the other mentioned documents, if not paid on time, can be reported to a Credit Report Company called Boletin Comercial.

The same is true of the promissory note (pagaré), which ? like bills of exchange and cheques – is an instrument enforceable by law and, when unpaid, may also be recorded at Boletín Comercial (see below). The promissory note needs to be validated (protestada) by a public notary or in a judicial trial.

The Boletín Comercial is a company dedicated to conducting financial risk analysis. It provides to other information companies (such as Dicom, SIISA) information about the debts registered at national level for all kind of debtors. Boletín Comercial is the official and most important company, on this matter, at national level under the authority of the Santiago Chamber of Commerce (Cámara de Comercio de Santiago). Both, Companies and individuals, can be registered as debtors in the Boletin Comercial. The register provides key financial information that can be consulted by anyone who is interested in obtaining a picture of the financial behaviour of a Company or individual.

Electronic transfers via the SWIFT network, widely used by Chilean banks, are a quick, fairly reliable, and cheap instrument.

Debt Collection

Amicable phase

Collection begins with an amicable collection process where parties can agree on a payment settlement or other payment plan. The length of this amicable phase depends on the predefined term of the documents supporting the debt (cheque, invoice, promissory note, bill of exchange). A formal notice is sent by a recorded delivery letter inviting the debtor to pay.

If the parties did not include any specific clauses in the commercial contract, the applicable rate for delays on the payment is the conventional interest rate as defined by the central bank of Chile on a periodical basis.

ORDINARY PROCEEDINGS

When a settlement agreement cannot be reached with the debtor, the creditor will initiate a legal collection process ruled by local civil procedure.

Aside from the Juicio Ejecutivo creditors who are unable to settle with their debtors out of court may enforce their right to payment through the corresponding legal action ruled by the civil procedure. According to the local procedural laws, there are two kinds of judicial collection procedures; i), ordinary proceedings (Juicio Ordinario); ii) and abbreviated proceeding (Juicio Sumario) depending on the value of the sued amount and the type of documents that support the debt.

The claimant needs to explain the basis for their legal action and enclose all supporting documents (original copies) and evidence. After the first presentation in court, the judge will decide whether the legal action has basis or not. If the judge considers there are enough arguments and evidence, he will give course to the process.

All judicial action needs the presence of a barrister or solicitor (lawyer), whether taking place in front of a minor court (Juzgados – primera instancia) or superior court (Corte Apelaciones o Suprema ? segunda instancia).

Debtors can dispute ruling with motivated arguments that law contains at the Código de Procedimiento Civil (Civil Procedure Code, defences) such as payment of debt, prescription, compensation, etc. Judges will consider these arguments and will accept or reject the defence. It is important to note that, while the defences of the debtor are discussed by the parties in the trial, the steps relating to seizure of assets are not stayed. The idea of this is that the debtor cannot delay the procedure unnecessarily.

Trials can last from six months up to two years, depending on the document, the debtor’s defence, and if an appeal is filed following the initial judgement.

Enforcement of a Legal Decision

Domestic judgments are enforceable when all appeals have been exhausted. If the debtor fails to comply with the decision, the court can order an auction of the debtor’s assets. Collection from a third party owing to the debtor is not possible.

Foreign judgments may be enforced if the Supreme Court validates these through an exequatur proceeding. Chilean law only recognises foreign judgements on a reciprocity basis: the issuing country must have an agreement with Chile regarding recognition and enforcement of legal decisions. Proceedings can last from between one to two years and the amounts to recover decrease because it is not possible to request the restitution of taxes paid to the treasury, which national companies can require.

Insolvency Proceedings

OUT-OF COURT PROCEEDINGS

Extra-judicial reorganization

The 2014 bankruptcy law recognizes agreements between creditors and debtors that are reached outside of a bankruptcy proceeding, whereby a court approves the agreement that was developed outside of the bankruptcy court. In order to be approved, two or more creditors whose claims represent at least 75% of the total claims corresponding to their respective group must accept the plan.

Chilean law distinguishes different categories of creditors during a bankruptcy process, e.g. employees owned money, creditors that have a mortgage (usually banks), etc. Creditors in these categories have preference for payment over others. If creditors do not meet the criteria to be part of these categories, they do not receive have any kind of preference for payment.

While considering the approval of said plan, the court stays the procedure and the legal actions against the debtor. However, during this time also, the debtor is prohibited from disposing of any of its assets. After approval, the plan has the same effect as a judicial reorganization.

Restructuring proceedings

Restructuring processes carried out without a formal bankruptcy process are also carried out through a court trial at the request of the creditor(s). In the event that the debtor is not able to reorganize his debt through any agreement or negotiation, creditors may request the liquidation of the company.

JUDICIAL REORGANIZATION

These agreements are more formal than extra-judicial agreements, and can only be filed by debtors, as they have to declare their insolvency to the court. The proceedings apply to both secured and unsecured creditors. Once debtors enter the judicial reorganization process, they must subsequently propose a reorganization plan, which requires the approval of at least two thirds of the total number of creditors.

LIQUIDATION

Liquidation is organized through a single procedure initiated upon demand of the debtor or creditors. The latter can file for bankruptcy when a debtor defaults without appointing an administrator for its business. Once bankruptcy is declared, a trustee is given responsibility for the debtors’ business and assets.

Last updated: October 2024