Civilian Rule Hasn’t Hurt Chile in Attracting Capital : Commerce: Leftist regimes used to frustrate business. Today’s coalition has kept investment at a level reached under military leaders.

A civilian government with socialist tendencies is proving that it can attract private foreign investment as well as Chile’s military regime did.

And that is very well indeed.

The government approved a record $3.4 billion in projects proposed by foreign investors during 1991, while “materialized” foreign investments totaled $1.1 billion.

Thus, Chile is still the Latin American country that attracts the most foreign investment in proportion to its economy.

When the armed forces left power in March of 1990, skeptics doubted that foreign capital would keep coming in under the government of Christian Democrats, Social Democrats and Socialists. The Socialists had besieged private enterprise when they and their former Communist allies held power before the military coup of 1973.

After some wrenching ups and downs, the military government applied free market policies, turning the economy into one of the most vigorous in Latin America. Foreign investors loved it--and still do.

Peter G. Schmidt, a Seattle entrepreneur who owns fishing and ship-building companies in Chile, predicts that foreign capital will pour in as long as Chileans steer the same course.

“Shoot, they can’t lose,” Schmidt said. “This place will keep going on, and investment will not only grow, but in growing amounts.”

Schmidt said politicians, including Socialists, seem to be aware that tampering with successful policies could poison the well of foreign and domestic investment.

“I think they’re making all the right moves,” he said. “If the politicians don’t give it away, they’ll be all right.”

Schmidt and his British manager in Chile, Michael Combes, listed some of the advantages of investing here: reasonable tax and labor laws, good transportation and communications, reliable Chilean business people and cooperative public officials.

“The bureaucracy works,” Combes said. “You don’t have to pay anyone off. It’s a pleasure to do business here.”

Civilian authorities took a few steps that worried Chilean and foreign businessmen at first. One was a 15% tax on corporate profits. Another requires that 20% of financial capital brought from abroad be deposited in the central bank.

Exxon, which has large mining investments in Chile, is contesting the deposit requirement in court. Large fishing companies have complained about a new law aimed at conserving fishery resources.

The Democratic Independent Union, a right-wing party associated with the former military government, frequently expresses alarm over what it portrays as a deteriorating investment climate. But a foreign diplomat said the party’s spokesmen exaggerate for political reasons.

“They throw a lot of scare rhetoric around,” said the diplomat, whose specialty is analyzing the Chilean market.

“It’s seen by investors as a very stable investment market, and since the onset of democracy, that perception has crystallized,” he said.

In late 1990, the Bush Administration gave its seal of approval to the civilian government by resuming U.S. government insurance for American investments here and by granting Chile favorable trade treatment under the General System of Preferences. President Bush visited Chile and praised its economic success.

Chile’s industrial association, known as SOFOFA, also takes a positive view of investment conditions under the civilian authorities.

“I would say there is no substantial change in this climate,” said Jaime Ale, SOFOFA’s manager of economic studies. “They have taken some measures that are not favorable to economic development, but I would say they are minor within the overall climate.”

Still, Ale said that if Chile is to achieve advanced economic development, it must do more to attract foreign investment in export-oriented manufacturing. Chile needs participation by multinational companies, he said, because they dominate advanced technology and export markets.

“To convert Chile into a great export platform--that is the challenge,” he said.

Many Chileans have expressed hope that their country will become a “Latin American tiger,” following the model of Asian tigers such as Taiwan, South Korea and Singapore. But in those countries, total investment amounts to about 30% of gross domestic product, while in Chile it is about 20%.

The Chilean rate of investment is much higher than in most Latin American countries. And foreign investment in Chile is about 5% of GDP, compared to less than 3% in the rest of Latin America.

Chile’s record $3.4 billion in approved foreign investment projects in 1991 was up from $1.5 billion in 1990.

Fernan Ibanez, executive secretary of the government’s Foreign Investment Committee, said that historically about 70% of approved investments are carried out. The $1.1 billion in investments carried out in 1991 was almost exactly the same amount as in 1990 and was up from $890 billion in 1989, the last full year of military rule.

Ibanez estimated that small foreign investments made through unofficial channels amounted to an additional $300 million in 1991, raising the total to nearly 5% of GDP. The GDP grew by 5.5% in 1991, more than double the 1990 rate.

Ibanez predicted that Chile will continue to receive foreign investment in about the same volume. One thing that keeps it coming, he said, is an average rate of return on investment of more than 35% a year.

Another attraction is the government’s open and cooperative attitude, he said. “The signal here is no red tape. We have to cut it.”

Investing in Chile Foreign investment in Chile reached a record $3.4 billion in 1991, which represents about 5% of the nation’s gross domestic product. United States: 43.9%

Japan: 12.5%

Finland: 11.8%

Australia: 9.0%

Canada: 4.3%

Cayman: 4.1%

Britain: 2.2%

Netherlands: 2.1%

Singapore: 1.5%

Hong Kong: 1.5%

Switzerland: 1.0%

Source: Chile Foreign Investment Committee