Chile is to unveil a series of capital market reforms to
boost foreign investment and domestic liquidity.
Eric Parrado, international finance director at the Chilean
finance ministry, said yesterday that the capital gains tax for
foreign and local investors in onshore bonds, currently 17%,
would be scrapped, in line with tax exemptions on equity
Foreign non-bank financial institutions participating in the
local syndicated loan market will pay only 4% tax for new deals
in line with the current tax for foreign banks.
Previously, these foreign investors, such as pension funds and
insurance companies, paid 35%.
Measures will also be introduced to broaden capital market
access to new issuers such as small and medium-sized companies,
Parrado told Emerging Markets in an interview in Medellin.
We want to incentivize foreign creditors and to increase
domestic liquidity with new capital market reforms, he
These measures form part of an eagerly awaited capital market
reform agenda, the MKIII, that has been languishing since the
middle of last year as the global financial crisis hit the
The new regulations will be sent to Congress this week, at a
time when regional governments seek ways to shore up credit
conditions in the face of rising global financial
Parrado argued that the need to boost domestic liquidity
outweighed the heightened risk of market disruptions that could
be triggered if foreign investors leave en masse when global
volatility hits. The measures may suck in a large amount of
domestic liquidity for local deals issued by foreigners.
The proposals come on top of large losses by Chilean pension
funds on investments in foreign equities. But Parrado denied
that a political backlash against these losses, or that the
international trend towards nationalization would derail these
capital liberalization proposals.
Latin governments are scrambling to attract capital in the face
of global deleveraging. Last October, the Brazilian government
removed its 15% IOF financial transactions tax on foreign
investors in public-sector debt investments.
Brazils deputy treasury secretary Paulo Valle told
Emerging Markets it would be a right time to debate
lifting taxes on foreign investments in onshore private-sector
corporate debenture deals, in order to jumpstart the moribund
private domestic fixed-income market.