Fynsa
Following several publications, particularly one by the international agency Bloomberg, there has been debate about whether Chile has once again become the safest economy in the region for investment.
Some absolute arguments are used, but there are also quite a few relative ones. In this sense, the decline in country risk represents a key measure, especially after having shown a significant increase in recent times, even compared to other countries in the region that have experienced political and social instability.
In addition, local financial markets suffered from this increased uncertainty, which was evident in the equity, fixed income, and foreign exchange markets. These faced significant punishment, but then did not show the normalization that could be observed in other countries, which, according to various analyses, corresponded to idiosyncratic factors.
In any case, as the publication points out, both the fixed income and foreign exchange markets have shown signs of normalization, which at one point could even have been described as excessive.
Within this heightened perception of local risk, we find that the information provided by the Daily Economic Uncertainty Index, compiled by the Central Bank, and the Economic Uncertainty Index (IEC) and Political Uncertainty Index (EPU), compiled by CLAPES UC, is extremely relevant. All three had shown a significant jump after the social crisis, which was exacerbated by the pandemic.
However, the most interesting thing was that it seemed that a new level of base uncertainty had been generated in the country, which was even higher than any other economic and/or financial stress situation in recent history.
Simply put, Chile was not perceived as being temporarily unsafe, but permanently so. In this regard, it is noteworthy that the Central Bank index was, in January, at its lowest level since October 2019, while the CLAPES indices, although still high, are below the average for the period following the social crisis.
With all this on the table, it is worth asking whether this makes Chile the safest economy in the region to invest in, but we are talking about investments other than portfolio or short-term investments. It is true that the variables I mentioned in the previous paragraphs cannot be overlooked and the availability of funds is important, especially after the decline in the local financial market following the withdrawal of pension funds.
However, the conditions that make an economy reliable (or "safe") for investment have to do with the rules of the game, legal, tax, and regulatory certainty, etc.; that is, institutions. Mobilizing our efforts to strengthen institutions that work and generating permanent consensus in those we want to function is vital to producing the stability that those looking to invest require, but also so that those of us who live in the country can see improvements in our well-being. That is a safe country.
