Fitch Affirms Chile's Foreign and Local Currency IDRs; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms Chile's ratings as follows:

--Foreign and Local Currency Issuer Default Ratings at 'A+' and 'AA-' respectively;

--Short-term Issuer Default Rating at 'F1';

--Country Ceiling at 'AA+'.

The Rating Outlook is Stable.

Chile's ratings are supported by years of prudent fiscal management, an effective and credible monetary regime anchored by a freely floating currency, and an economic model based on competitive markets. These strengths sufficiently counterbalance its high commodity dependence and the country's low per capita income and weaker human development indicators relative to 'A' category peers.

Chile's economic performance continued to be solid in 2011 although Fitch expects the economy to slow this year as demand for exports softens and international financial conditions remain volatile. 'Chile is well- prepared to contain the negative effects stemming from the unfavorable and volatile international financial conditions due to its strong fiscal balance sheet and its credible macroeconomic policy framework' said Santiago Mosquera, director at Fitch Latin America Sovereigns.

Achieving faster growth rates in the medium term would require reforms to accelerate productivity gains after years of under performance. Higher growth trajectory will facilitate the convergence of Chile's per capita income with its peers which currently remains low at USD13,760 (at market exchange rate), compared with the 'A' and 'AA' medians of 23,070 and 33,170, respectively.

Chile continues to improve its fiscal policy framework underpinned by the fiscal rule that has been in place since 2001 and has been critical to reduce economic volatility, increase public savings, maintain a competitive exchange rate, and build important fiscal cushions. Fitch considers that the revised version of the fiscal rule has further bolstered fiscal transparency and institutionality. The government has renewed its commitment to bring the structural deficit from 1.6% of GDP in 2011 to 1.0% in 2014.

Chile has relatively little public debt, with gross and net public debt indicators among the strongest in the 'A' category. Sizable resources in Chile's stabilization funds also bolster fiscal flexibility. Chile's debt indicators would likely remain superior to the 'A' median even under less favorable economic conditions.

'Thanks to a foreign reserve accumulation program implemented in 2011, Chile's liquidity and net sovereign external creditor position are stronger, thereby enhancing the country's shock-absorption capacity' added Mosquera. Commodity dependence remains high, but the solid macro-policy framework as well as the sovereign's external creditor position reduces the risks on the economy from negative terms of trade shocks.

Chile's middle class has been growing after two decades of solid economic performance, and so are its demands for economic and social mobility. Education protests in 2011 highlighted their growing expectations for a brighter future. Despite protests' length and intensity Fitch does not believe that Chile faces an institutional crisis, and the agency foresees that the government would continue to show pragmatism in addressing the growing social pressures.

Sustained good economic performance, further strengthening of fiscal and external balance sheets as well progress on micro reforms that enhances productivity, medium-term growth prospects and bridge the per capita income relative to peers would improve Chile's creditworthiness. The authorities' successful management of the growing social demands of the Chilean society would also be positive. On the contrary, a sustained weakening in public finances without a concrete commitment for future consolidation, and unfavorable debt dynamics could undermine creditworthiness.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Sovereign Rating Methodology' (Aug. 15, 2011).

Applicable Criteria and Related Research:

Sovereign Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648978

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