Chile’s Good Year

Ashby Monk

Chile is in an envious position. Their two new SWFs–the Economic and Social Stabilization Fund and the Pension Reserve Fund–posted positive returns in 2008. In a year that saw markets fall by well over 30%, Chile’s funds returned 7.6%. How’d they do it? By avoiding equities altogether; the funds are totally invested in fixed income securities.

More generally, the health of their SWFs has also facilitated sensible policies in response to the global economic crisis. Indeed, countries around the world are looking to Chile for ideas as to how they might deal with their own problems. Some of this interest stems from Chile’s management of their economic crisis in the early 1980s. However, much of it is related to the Country’s consistent and sound macro-economic management–for which the creation of two SWFs was a key component.

Indeed, Chile’s SWFs are proving extremely useful in the current environment, providing $4 billion for a stimulus package. This has left Chile in a strong position vis-à-vis other Latin American economies and, indeed, Western countries. In fact, Chilean President Michelle Bachelet recently scolded British Prime Minister Gordon Brown for past policies that left little room for fiscal stimulus.

Maybe the UK needed a SWF?

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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