The Central Bank of Chile has for sometime imposed a requirement to deposit with it on a non-interest earning basis (or to pay as an alternative a fee) an amount equal to 30% of almost all equity investments made under Chapter XIV of the Compendium of Foreign Exchange Regulations and of loans registered under that Chapter and under Decree Law 600.
Until October 23, investments made under Chapter XIV, whose purpose was to pay in or expand the capital of a Chilean company, were exempt from this requirement. In addition, until that date, all equity investments made under Decree Law 600 were also exempt from this requirement and foreign currency brought into Chile under it, both by way of equity or loans, could be converted into Chilean pesos immediately after the relevant application was filed with the Foreign Investment Committee and even before it was approved.
On October 23 1996, the Central Bank of Chile adopted Resolutions Nos. 554E-01-961007 and 558E-01-961023, which amended, as of October 24, the existing regime as follows:
- All equity investments made in Chile under Chapter XIV shall be subject to the deposit requirement, unless they are made with the purpose of either paying in or increasing the capital of a Chilean company, provided the latter uses the funds to expand its productive capacity of goods and services, or purchasing shares or rights of an existing company with the purpose of becoming involved in its management. The Central Bank shall determine in each case whether the above exemptions have been met.
- Equity investments that do not meet the two conditions mentioned above will not qualify under Decree Law 600 and must be made under Chapter XIV and be subject, therefore, to the deposit requirement.
- Foreign currency sent to Chile under the terms of Decree Law 600, whether by way of equity or loans, can no longer be converted into Chilean pesos after the submission of the relevant application but rather only after the corresponding foreign investment agreement has been actually executed by the Republic of Chile and the foreign investor. However, the Foreign Investment Committee has been given discretion to grant exemptions to this restriction.
The purpose of the first two amendments described above is to prevent further inflow into Chile of merely financial or speculative investment whose purpose was in many cases to avoid meeting the deposit requirement. It constitutes, therefore, another step taken by the Central Bank to prevent a further appreciation of the Chilean peso.