## 1. Detailed Assessment of Observance of IMF’s MFP Transparency Code—Monetary Policy

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---

### General / Assessment scope and method
- Assessment examines observance by the Central Bank of Chile (BCCh) of the IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies (MFP Transparency Code) for monetary policy.
- Conducted as part of the joint IMF/World Bank Financial Sector Assessment Program (FSAP).
- Assessment based on:
  - a pre-mission work;
  - a review of relevant laws, regulations, and policies;
  - documentation provided on the BCCh website and in a variety of official BCCh publications;
  - discussions with the BCCh and market participants.
- Missions took place in December 2003 and March 2004; assessment carried out by Marie-Thérèse Camilleri Gilson (IMF).

### Main findings — summary of strengths and issues
- Clarity of roles, responsibilities, and objectives
  - High degree of compliance with the Transparency Code, including in the objectives and responsibilities of the central bank.
  - Target and instrument autonomy are very strong and enshrined in the Constitution.
  - Two areas where further clarification could be useful:
    - Uncertainty in interpretation of statutory definition of the monetary policy objective: “currency stability” may refer to internal (price) or external (exchange rate) stability.
    - Institutional responsibilities for determining the exchange rate regime could be more explicitly spelled out.
  - Ambiguity could be strength (flexibility) or weakness (does not explicitly support current inflation targeting regime).

- Open process for formulating and reporting monetary policy decisions
  - Monetary policy formulation, implementation and communication are highly transparent.
  - Framework, targets, instruments and procedures are discussed in non-technical notes, detailed studies, and numerous publications on the web-site.
  - Resolutions are published in the Official Gazette; changes in monetary policy instruments are explained in the Monetary Policy Report and immediately communicated to market participants.
  - Board meeting minutes, including individual votes and arguments, are published within a month and a half of the meetings.
  - Regulatory framework and operating guidelines for counterparts are publicly available.

- Public availability of information
  - Extensive publications on the web-site: Monetary Policy Report; Economic Policy Papers; Economic and Financial report; Monthly Bulletin; Annual Report.
  - Key explanatory documents: “Monetary Policy of the Central Bank of Chile: Objectives and Transmission” and “The Central Bank of Chile and the Economy.”
  - Proceedings of annual conferences and texts of public addresses of central bank officials available.

- Accountability and assurances of integrity
  - Bank must inform the President of the Republic and the Senate on its duties, policies and any regulations with general applicability.
  - In practice BCCh provides extensive explanations justifying policy decisions.
  - Central bank required to consider general orientation of Government economic policies when passing Board resolutions; Finance Minister attends Board meetings (including monetary policy meetings) with veto rights subject to detailed procedures and limitations in law.
  - Internal governance provisions will shortly be published on the BCCh web-site.

### Principle-by-principle assessment approach
- Qualitative observance assessment based on laws, regulations and practices.
- Five-part rating: observed; broadly observed; partly observed; not observed; not applicable.
- Detailed table referenced: "Table 1. Detailed Assessment of Observance of IMF’s MFP Transparency Code—Monetary Policy".

---

### 1.1 Objectives, institutional framework, and legal basis

### Legal basis and statutory objectives
- Constitutional basis: Article 97, Chapter XII of the Constitution; Basic Constitutional Act of the Central Bank of Chile (Law 18,840), amended as of May 31, 2002. Amendments require a quorum of two thirds of the Senate.
- Statutory objective (Section 3): “the Bank shall have as its purposes to provide for the stability of the currency system and the due payment of both internal and foreign debts.” Spanish: “la estabilidad de la moneda y el normal funcionamiento de los pagos internos y externos.”
- Preliminary change in translation under consideration to “the Bank shall have as its purposes to provide for the stability of the currency and the normal functioning of external and internal payments.”

### Assessment of objectives and autonomy
- Observed: Target and instrument autonomy are strong and enshrined in the Constitution; law provides safeguards for accountability.
- Risks and mitigants:
  - Statutory wording allows flexibility (may support inflation targeting or fixed exchange rate) creating potential ambiguity—phrase “normal functioning of external and internal payments” and interpretation of “currency stability.”
  - Mitigant: extensive public disclosure (Board communiqués) regarding inflation targeting regime.
- Recommendation: finalize the official English translation of “estabilidad de la moneda” to replace “stability of the currency system” with “currency stability.”

### Public disclosure of objectives and transmission
- Objectives specified in legislation (Section 3).
- Objectives and exchange rate policy disclosed on the Bank’s website; specific statement of objectives and transmission mechanism available.
- Additional disclosure channels: publications program, concluding statements of Monetary Policy meetings, seminars.

### Responsibilities and authority to use instruments
- Statutory responsibilities (Section 3): regulate credit and currency in circulation; issuance of regulations on monetary, credit, financing and foreign exchange matters.
- Authority to use instruments: Sections 34, 35 and 36 provide instrument authority (regulation of stock of money in circulation and credit; financial sector and capital market regulation; maintenance of financial sector stability).
- Assessment: Observed.

### Institutional responsibility for foreign exchange policy
- Statute: foreign exchange regulation referenced in Section 3 and Subtitle 8; statute does not explicitly assign institutional responsibility for choice of exchange rate regime.
- Operational stance: since September 1999 shift to free-floating regime; Bank committed to maintain inflation within target range while market determines currency value; exceptional interventions possible and described as “transparent, well-founded measures.”
- Assessment: Observed — Charter gives BCCh clear responsibility for performing and regulating foreign exchange transactions but not explicit allocation of responsibility over choice of exchange rate regime.
- Suggestion: responsibility for setting the exchange rate regime could be more clearly spelled out.

### Accountability modalities and legal remedies
- Reporting requirements (Section 4): Bank must inform the President and the Senate regarding its policies and regulations with general applicability.
- Judicial recourse (Section 66): decisions and measures under specified sections and subtitle may be appealed to the Court of Appeals of Santiago.
- Assessment: Observed.

### Government override and conflict-resolution procedures
- Finance Minister participation (Section 19): may attend Board meetings with the right to be heard.
- Suspension/veto:
  - Minister may suspend application of any Board motion or resolution for up to 15 days unless Board majority insists.
  - During suspension Governor must call a meeting within three working days if requested.
  - If rules expire during suspension, they are extended until suspension ends and disclosed in the Official Gazette.
- Presidential removal powers:
  - Governor could be dismissed upon reasoned request of at least three Board members requiring Senate approval.
  - President may remove any or all Board members for voting for measures contrary to central bank objectives that create direct and clear damage to the national economy; removal requires Senate majority approval.
- Assessment: Observed.
- Comment: A formal conflict-resolution procedure requiring publication of statements by both parties in a disagreement could enhance central bank leverage; existing fiscal discipline and communications mitigate risks.

### Appointment, terms, and removal of governing body members
- Appointment and terms:
  - Board members: staggered renewable terms of ten years (Sections 7 and 8); appointed by the President with prior Senate approval via executive decree through the Ministry of Finance.
  - Governor: appointed by the President from among Board Members to chair the Board for a five year renewable term (or until expiration of Board membership term).
  - Vice-governor: elected by Board for duration of Board appointment.
  - Board members precluded from other activities except teaching or academia.
- Dismissal:
  - Section 16: President may dismiss Chair/Governor upon justified request of at least three members; dismissal requires prior Senate approval sought within thirty days. Dismissed person may be reappointed after ten years.
  - Section 17: President may remove any or all Board Members for voting in favour of resolutions representing a “material and clear breach of the purposes of the Bank” that caused material damage to the economy; removal requires prior Senate approval and a hearing; removed members cannot be reappointed for ten years.
  - Board members can be removed via accusation to the Court of Appeals of Santiago for conflicts of interest or abuse of position.
- Assessment: Observed.
- Comments:
  - Best practice suggests terms should exceed the electoral cycle of appointing authority; Governor’s five year chair term could fall within the electoral cycle, creating incentives for partisan behavior.
  - Renewable ten-year terms can lead to extended tenures (up to twenty years if renewed).
  - Consider introducing cooling-off periods for subsequent service to avoid conflicts of interest.
  - Article 54 of the Constitution precludes BCCh Board members from running for election to the Senate or Congress.

### Institutional relationship between monetary and fiscal operations
- Statutory coordination:
  - Section 6 requires the Bank to consider general orientation of Government economic policies when passing Board resolutions, subject to primacy of Section 3 objectives.
  - Section 53 authorizes the Bank to obtain from public sector entities any information it may deem necessary.
  - Section 4 allows the Bank to advise the President upon request.
- Finance Minister role:
  - Section 19 grants Minister of Finance right to attend Board meetings, be informed in advance in writing of meetings and agenda, and suggest resolutions for the next meeting.
- Assessment: Observed — provisions, permanent representation of finance ministry on the Board, and information sharing support coordination interpretation.

### Prohibition on advances to government
- Statutory prohibition (Section 27): “No public expenditure or credit of whatsoever nature may be financed either directly or indirectly with loans granted by the Bank.” Exception: foreign war or threat of foreign war, qualified by the Council on National Security via secret resolution.
- Constitutional backing: Article 98 precludes direct or indirect credit to government (except for public financial institutions).
- Disclosure: amounts of such facilities disclosed in the central bank balance sheet and annual report.

---

### Section 37 — Fees, operations, and central bank economic involvement

### Fees, deposits, and remuneration
- Section 37: Minister of Finance may request BCCh to take part in any transaction compatible with its objectives on behalf of the State by issuing an executive decree; Bank is entitled to charge a fee agreed upon with the State for acting as fiscal agent.
- Section 34: Bank may set up deposit accounts on behalf of the Treasury or State enterprises.
- Remuneration of government’s foreign currency deposits held at the central bank: interest rates are market-related rate (discounting for lower risk).
- Fees charged by the central bank are established on a cost recovery basis.

### Central bank participation in government securities markets
- Section 27: BCCh precluded from direct participation in markets for government securities; "Under no circumstances... shall the Bank acquire securities issued by the state, its agencies or enterprises."
- Wording suggests prohibition applies to primary and secondary markets.

### Central bank involvement in the rest of the economy
- Equity ownership limited to the financial sector; historical involvement from 1983 banking crisis and subsequent exposures.
- BCCh represented on governing boards including Cochilco, the secretariat against trade distortions, and the foreign investment committee.
- Procurement:
  - Calls for offers for sizable contracts are published in the Official Gazette and regulated by Ley sobre Contratos Administrativos No.19.911.
  - Procedures set out in Compendio de Normas Administrativas Internas; specific procurement issues in Procedimientos Administrativos de la Gerencia de Administración y de Contabilidad.
- Provision of services for a fee limited to role as fiscal agent (Section 37) and services other than banking to financial institutions (Section 54).
- Assessment: Broadly Observed.
- Comments: Internal audit provisions in Section 26 are not yet publicly disclosed; Chapter V of internal norm codes regarding acquisitions and procurement modalities will shortly be published on the BCCh web-site.

### Capital, profit allocation, and reserves
- Capital:
  - Section 5 specifies initial capital of the Bank amounts to $500 billion.
  - Capital may be increased by decision of the majority of Board Members, through capitalization of reserves and adjusted by means of monetary correction.
  - By majority Board decision, Bank may request Minister of Finance to increase capital or make specific contributions on account of funds to be appropriated under the Nation’s Budget Act.
- Profit allocation:
  - Section 77: Up to 10 percent of any surplus to be allocated to constitute reserves, if the Board so decides.
  - Resulting balance would then be transferred to fiscal revenue unless law applies whole or part to increase Bank capital or reserves.
  - Any deficit to be offset against existing reserves.
- Assessment: Observed.
- Comment: Suggest specifying a limit on allocation to general reserves until a specified threshold is reached; a percentage of monetary liabilities in the range of 5 to 10 percent could be a proxy for required reserves.

### Agency roles performed on behalf of the government
- Section 37 allows BCCh to act on behalf of the State when requested by the Minister of Finance and charge agreed fees.
- (i) Management of domestic and external public debt and foreign exchange reserves:
  - Permissible transactions include repayment and servicing, conversion and renegotiation; Treasury must provide necessary funds; Bank may charge fee.
  - Standards and procedures for reserve management drawn up by the Board and implemented by the International Division with foreign investment banks.
- (ii) Banker to the government:
  - Section 55 allows Bank to open checking accounts to the Treasury and other state entities; issuance of general conditions determined by Board majority.
  - Examples on balance sheet: Copper Stabilization Fund, Oil Price Stabilization Fund, and foreign exchange deposits.
- (iii) Fiscal agent:
  - Bank may participate and operate with foreign or international financial bodies; contract credits abroad; issue securities and place them in international markets; grant credits when consistent with objectives; maintain, manage and dispose of foreign currency reserves. Authority detailed in Section 38.
- (iv) Advisor: Section 4: Bank advises the President upon request and organizes seminars at request of the Senate Financing Commission.
- Assessment: Observed.

### Allocation of responsibilities for government securities issuance and servicing
- BCCh represents Treasury in placement and administration of payment services of bonds issued by Treasury in UF in domestic market (Decree No.855; BCCh Board Agreement No.1088E-01-031010 and Operating Regulation).
- BCCh places issued BTU in primary market; allowed primary market participants listed.
- Division of responsibilities published in cited dispositions; Treasury assumes overall responsibility for bond redemptions and payments; BCCh carries out redemptions in name of Treasury, deducting charges from funds deposited at BCCh.
- Assessment: Observed.

---

### Monetary policy framework, operations, disclosure, and governance

### Framework, targets, instruments, and disclosure
- Framework disclosure: Non-technical note and extensive discussions on BCCh web-site.
- Targets:
  - Inflation target defined as a symmetrical range of from 2 to 4 percent, centered on 3 percent, to be met permanently over a medium-term horizon of two years.
  - Medium-term operating target: changes in the consumer price index (CPI); short-term assessment uses underlying inflation measures including the one registered by the National Statistics Bureau.
  - Macroeconomic models and judgment used to forecast inflation over a medium-term horizon of 12 to 24 months.
  - Nominal interbank interest rate (tasa de política monetaria) is an intermediate target.
- Instruments:
  - Central bank targets nominal interbank interest rate by regulating liquidity through open market operations, purchases and sales of short-term promissory notes, liquidity deposits and lines of credit.
  - Reserve requirements tend not to be used as active instrument.
- Assessment: Observed.
- Comment: Planned disclosure of the model underlying inflation forecasts noted.

### Monetary policy operations, counterpart rules, and market interventions
- Operations procedures:
  - Open market operations via regular Dutch auctions of central bank promissory notes (for financial institutions, pension fund managers, insurance companies and mutual funds).
  - In shortages, central bank purchases promissory notes using overnight repurchasing agreement; to mop up excess liquidity it sells short-term notes in dematerialized form.
  - Liquidity management based on cash flow program covering reserve measurement period; auctions calendar provided to public the day before a new reserve period begins.
  - Day-to-day liquidity management uses repurchase operations or special sales of short-term promissory notes.
  - Liquidity credit line: financial institutions can obtain one-day unsecured loans for limited amounts by interest rate tranche.
  - Liquidity deposit: institutions can deposit temporary surpluses at the central bank for minimal return.
- Foreign exchange interventions: exceptional interventions reported biweekly in the Economic and Financial Report; rationale summarized in January 2003 Monetary Policy Report.
- Counterpart rules and disclosure: regulatory framework and operating guidelines for central bank counterparts available on the web-site; circulars and correspondence published.
- Assessment: Observed.

### Monetary policy governance and meeting schedule
- Organizational disclosure:
  - Organizational chart including Board members, General Manager, General Counsel, and Division Managers published on the web-site, including curricula vitae.
  - Functions of the Board in Section 18 include establishing general policies; issuing regulations; approving internal staff regulations; appointing and terminating key officials; opening/closing domestic and foreign agencies; determining working days; approving financial statements and reserves; delegating administrative authority.
  - Minutes of Board meetings, including individual votes and arguments, published forty five days after meeting.
  - Specific regulations for functioning and attendance to monetary policy meetings are presented on the web-site.
- Assessment: Observed.
- Comments: Discussion of alternative Board structures (non-executive directors, separate supervisory board) and full-time versus part-time membership to depoliticize decision-making; conflict-of-interest mitigation commentary.
- Meeting schedules and notice:
  - Two types of Board meetings: ordinary and monetary policy meetings.
  - Monetary policy meetings held on a monthly basis and publicly announced six months in advance.
  - Ordinary meetings scheduled “once a week, preferably on Thursdays.”
  - Notice of meetings, including agenda, draft motions and relevant background information, to be sent to all Board members and to the Finance Minister via the Board secretariat with 48 hours’ notice.
- Assessment: Observed.

---

### 2.3 Changes in monetary policy instruments and public communication

### Procedure for changes and publication
- Decisions from monetary policy meetings take effect upon publication of relevant resolution in the Official Gazette.
- Changes in monetary policy instruments are:
  - explained in the Monetary Policy Report;
  - communicated immediately (in Spanish and English) after the closing of the monetary policy meeting.
- Official statements publicly available on the web-site.
- Assessment: Observed.

### Disclosure of considerations underlying decisions (2.3.1)
- At the end of each monetary policy meeting, Board approves official statement for external distribution.
- Summary of monetary policy meetings approved at the following ordinary meeting and made public six weeks after that meeting.
- Monetary Policy Report published three times a year; analyses economic and financial conditions, policy basis and prospects in short and medium term.
- Assessment: Observed.

### Periodic public statements on progress and prospects (2.4, 2.4.1, 2.4.2)
- Statutory reporting:
  - Sections 78 to 80: annual report on previous year's activities, including financial statements with notes and opinion; submitted to the ministry of finance and the Senate prior to April 30 each year and available to the public.
  - Prior to September 30 each year, Board submits evaluation of progress and a report on proposed policies and programs for next calendar year, outlining economic projections and possible effects on major items of the financial statement.
- Monetary Policy Report (three times a year):
  - Presents evaluation of past inflation trends; baseline scenario with explicit forecasts for future inflation (and growth); declares risks perceived for next 12 to 24 months.
  - Main objectives: inform and explain Board’s view of inflation trends and consequences for policy; explain medium-term framework; provide information useful for economic agents’ expectations.
  - Current issue may be purchased at US$20; all previous issues available for download.
- Assessment: Observed.
- Comment: Publication helps focus attention on inflation projections; credibility depends on timely and appropriate reaction to forecast changes.

### Public consultations on technical regulatory changes (2.5)
- BCCh gathers comments from commercial banks via meetings and web page.
- Two web-based public consultations: Transition to RTGS (July 2003) and Regulations regarding maturity mismatch (April 2003). Comments invited over one month.
- Assessment: Observed.

### Disclosure of data reporting regulations (2.6)
- Financial regulations with information on data reporting requirements available on web-site; circulars and letters to financial institutions published.
- Assessment: Observed.

---

### Public availability of information, accountability, and integrity (Sections III and IV)

### Data dissemination and publications (Section III)
- Section 53 requires compilation and publication of macroeconomic statistics (monetary and foreign exchange, balance of payments, national accounts, social accounting systems).
- Board establishes nature, contents and periodicity of disclosures by resolution published in the Official Gazette.
- BCCh provides principal financial and macro-economic series as established by the IMF’s Special Data Dissemination Standard (SDDS); Chile subscribed in 1997.
- A 2001 ROSC report concluded Chile meets SDDS specifications for timeliness, coverage and periodicity and dissemination of advance release calendars.
- Balance sheets and financial statements:
  - Annual audited financial statements published in the Official Gazette and national newspaper before April 30 each year.
  - Monthly financial statement published in Economic Financial Indicators; from January 2004 superseded by Monthly Bulletin.
  - Economic and Financial Report (from January 2004 superseded by Monthly Bulletin) includes origin of variations in monetary base.
  - Information on foreign exchange reserve assets, liabilities and commitments published including international liquidity statement and foreign currency position.
- Main publications: Monetary Policy Report; Economic Policy Papers; Monetary Policy of the Central Bank of Chile: Objectives and Transmission; the Economic and Financial report; Annual Report; “The Central Bank of Chile and the Economy” (quarterly since January 2003); Monthly Bulletin (from January 2004).
- Texts of statements and PowerPoint presentations by Board and staff available in original language; English documents posted for 2003.
- Regulations available on web-site and published in Official Gazette.
- Assessment: All listed practices in Section III assessed as Observed.

### Accountability and assurances of integrity (Section IV)
- Accountability to public authorities (4.1): Section 4 requires informing President and Senate regarding policies and regulations of general applicability and advising President upon request. Assessment: Observed.
- Audited financial statements and disclosure (4.2, 4.2.1): External auditors appointed by Board; statements include summary of accounting principles and auditor notes. Assessment: Observed.
- Internal governance and disclosure of internal norms (4.2.2): Internal audit provisions (Section 26) not publicly disclosed; Chapter V of internal norm codes regarding acquisitions and procurement to be published shortly. Assessment: Broadly Observed.
  - Comment: Publishing internal governance would enhance public perception of integrity; initiative welcomed.
- Expenses and revenues disclosure (4.3): Income statement presented within financial statements attached to annual report and published on web-site; includes personnel and administrative expenses. Assessment: Observed.
- Standards on conduct and conflicts of interest (4.4, 4.4.1):
  - Section 13: Board members precluded from intervening or voting on resolutions where they have commercial interest; Board membership incompatible with service in private sector and certain public institutions; permitted participation in non-profit institutions and academia.
  - Prior to office, Board members must declare interests under oath, filed with a notary and held by vice-governor.
  - No current public disclosure of staff personal affairs standards; short synthesis of internal rules regarding staff financial affairs to be published shortly.
  - Code of conduct and provisions against conflict of interest lie within internal documents in Section 81; other aspects within Labour Code.
  - Assessment: Broadly Observed.
  - 4.4.1 (legal protections for officials and staff): Section 21 indicates Board members not obligated to appear in court except as provided by civil and criminal procedure codes. Assessment: Not Applicable.

### Summary observance metrics (Table 2)
- Observed: 42 — practices listed include 1.1; 1.1.1; 1.1.2; 1.1.3; 1.1.4; 1.1.5; 1.1.6; 1.1.7; 1.2; 1.2.1; 1.2.2; 1.2.3; 1.2.5; 1.3; 1.3.1; 1.3.2; 2.1; 2.1.1; 2.1.2; 2.2; 2.2.1; 2.3; 2.3.1; 2.4; 2.4.1; 2.4.2; 2.5; 2.6; 3.1; 3.2; 3.2.1; 3.2.2; 3.2.3; 3.2.4; 3.3; 3.3.1; 3.3.2; 3.4; 4.1; 4.2; 4.2.1; 4.3
- Broadly observed: 3 — practices 1.2.4; 4.2.2; 4.4
- Partly observed: 0
- Not observed: 0
- Not applicable: 1 — practice 4.4.1

### Recommended action plan (Table 3)
- Practices 1.2.4 and 4.2.2:
  - Pursue publication of internal norms regarding acquisitions and procurement on the BCCh web-site together with a brief note on internal governance.
- Practice 4.4:
  - Pursue web-site publication of a note on internal rules regarding the personal financial affairs of the staff.

---

### Chilean authorities’ view on institutional responsibility for foreign exchange policy

### Legal basis and institutional role (authorities’ position)
- BCCh is a public law (derecho público) institution, autonomous and technical.
- COA requires BCCh to “provide for the stability of the currency and the normal functioning of external and internal payments.”
- BCCh authorized to:
  - regulate amount of currency and credit in circulation;
  - perform credit and foreign exchange transactions;
  - exclusively issue regulatory provisions regarding monetary, credit, financing and foreign exchange matters.
- Exclusiveness derives from prior transfer of authority from the Monetary Council consistent with 1980 Constitutional Act.

### Judicial characterizations and exclusivity
- Judicial pronouncements indicate:
  - (i) BCCh is independent from the State in fulfilling its public duty conferred by law;
  - (ii) subordinated to the 1980 CA and the COA for composition, organization, duties and authorities;
  - (iii) exclusive entity empowered to issue regulatory provisions regarding foreign exchange matters.
- Latest judicial decision cited: Court of Appeals of Santiago dated September 26, 2003, confirmed by the Supreme Constitutional Court.

### Relationship with the Executive
- President lacks authority to regulate matters exclusively conferred to BCCh.
- Sections 6 and 7 of the 1980 CA penalize infringement with nullity of the act.
- COA provisions relevant to BCCh public duty:
  - (i) perform in accordance with general orientation of government economic policy;
  - (ii) inform President and Senate as provided in law;
  - (iii) include Minister of Finance at Board meetings with right to be heard, power to suspend enforceability of any Board decision for up to 15 days, and right to veto enforceability of foreign exchange restrictions unless adopted with favorable vote of all Board members.

### BCCh powers on foreign exchange transactions
- BCCh may:
  - purchase and sell foreign currency;
  - issue notes payable in US dollars or denominated in foreign currency;
  - enter into derivative transactions and hedge agreements.
- BCCh may regulate foreign exchange transactions by setting limits and restrictions to fulfill its legal purpose.

### Authorities’ response to IMF assessment
- Chilean authorities reject the IMF implication that BCCh statute does not explicitly refer to institutional responsibility for choice of exchange rate regime.
- BCCh modified foreign exchange policy using its exclusive legal authority; examples exist pre- and post-COA showing exclusive exercise of authority to establish and amend foreign exchange regime components.
- Resolutions adopted with Executive participation via Ministry of Finance as provided in COA, published in Official Gazette and reported to Senate.

### Transparency and governance measures under way (authorities’ actions)
- Steps to increase transparency with respect to principles 1.2.4, 4.2.2 and 4.4 include:
  - short-term publication of procurement procedures;
  - publication of norms governing ethical and personal conduct of staff;
  - more detailed description of internal audit unit to be made public when available.

*Source: _cr04326 - 1. Detailed Assessment of Observance of IMF’s MFP Transparency Code—Monetary Policy (IMF Financial Sector Assessment Program extract).*

### 1. Detailed Assessment of Observance of IMF’s MFP Transparency Code—Monetary

### 1. Detailed Assessment of Observance of IMF’s MFP Transparency Code—Monetary Policy

### General
- Assessment examines observance by the Central Bank of Chile (BCCh) of the IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies (MFP Transparency Code) for monetary policy.
- Conducted as part of the joint IMF/World Bank Financial Sector Assessment Program (FSAP).
- Assessment based on:
  - a pre-mission work;
  - a review of relevant laws, regulations, and policies;
  - documentation provided on the BCCh website and in a variety of official BCCh publications;
  - discussions with the BCCh and market participants.
- Missions took place in December 2003 and March 2004, at which time the assessment was carried out by Marie-Thérèse Camilleri Gilson (IMF).

### Main Findings—Summary
- Clarity of roles, responsibilities, and objectives of the central bank for monetary policy
  - High degree of compliance with the Transparency Code, including in the objectives and responsibilities of the central bank.
  - The target and instrument autonomy of the Central Bank of Chile is very strong by virtue of being enshrined in the Constitution.
  - Two areas where further clarification could be useful:
    - Uncertainty in the interpretation of the statutory definition of the monetary policy objective, since "currency stability" may refer to internal (price) or external (exchange rate) stability.
    - Institutional responsibilities of the central bank in determining the exchange rate regime could be more explicitly spelled out.
  - Observational note: the ambiguity could be viewed as strength (greater flexibility) or weakness (does not explicitly support current inflation targeting regime).

- Open process for formulating and reporting monetary policy decisions
  - Process for monetary policy formulation, implementation and communication is highly transparent.
  - Framework for monetary policy, its targets, instruments and procedures are discussed in non-technical notes, detailed studies, and numerous publications available on the web-site.
  - Resolutions are published in the Official Gazette and any changes in monetary policy instruments are explained in the Monetary Policy Report and immediately communicated to market participants.
  - Board meeting minutes, including individual votes of members present, their arguments and opinions expressed, are published within a month and a half of the meetings.
  - Regulatory framework and operating guidelines for the central bank’s counterparts in the financial sector are publicly available on the web-site.

- Public availability of information on monetary policy
  - Extensive publications available on the web-site, including:
    - the Monetary Policy Report,
    - Economic Policy Papers,
    - the Economic and Financial report,
    - the Monthly Bulletin,
    - the Annual Report.
  - Two additional helpful documents cited:
    - “Monetary Policy of the Central Bank of Chile: Objectives and Transmission”
    - “The Central Bank of Chile and the Economy.”
  - “The Central Bank of Chile and the Economy” introduces the central bank’s purpose, functions, and main regulations as well as the principal macroeconomic time series since 1986.
  - Proceedings of annual conferences and texts of public addresses of central bank officials are also available on the web-site.

- Accountability and assurances of integrity by the central bank
  - Accountability ensured by requirement that the Bank inform the President of the Republic and the Senate in the performance of its duties, its policies and any regulations having general applicability.
  - De jure requirement is to provide information on its policies; in practice BCCh provides extensive explanations justifying appropriateness of policy decisions.
  - Central bank required to consider the general orientation of the Government’s economic policies when passing a resolution through the Board and may obtain any necessary information from other public institutions.
  - Institutional relationship described as coordination, subject to the primacy of the central bank objectives.
  - Sharing of information between the monetary and the fiscal authority facilitated by presence of the Finance Minister in Board meetings.
  - The Minister of Finance attends Board meetings (including monetary policy meetings) with veto rights subject to detailed procedures and limitations as set out in the law.
  - A number of internal governance provisions will shortly be published on the BCCh web-site, significantly enhancing operational transparency and market perceptions of integrity.

### Principle-by-Principle Assessment
- Assessment approach:
  - Qualitative assessment of observance with each practice of the MFP Transparency Code based on existing laws, regulations, and practices.
  - Five-part assessment system used:
    - observed, implying full observance or with insignificant shortcomings;
    - broadly observed, where minor weaknesses exist and these are not seen as being of a significant nature so as to raise serious doubts about the BCCh’s ability to achieve the objective of that practice;
    - partly observed, where shortcomings are sufficient to raise doubts about the BCCh’s ability to achieve observance and could affect the operational process and effectiveness of monetary policy;
    - not observed, where the practice is not being observed and no substantive progress has been recorded toward achieving the objectives of the practice;
    - not applicable, where, due to the institutional and legal framework, the transparency practice is not relevant.
- Table referenced: "Table 1. Detailed Assessment of Observance of IMF’s MFP Transparency Code—Monetary Policy"
- Section header: "I. CLARITY OF ROLES, RESPONSIBILITIES AND OBJECTIVES OF CENTRAL BANKS FOR MONETARY POLICY"

*Source: _cr04326 - 1. Detailed Assessment of Observance of IMF’s MFP Transparency Code—Monetary Policy (IMF).*

### 1.1 The ultimate objective(s) and institutional framework of monetary policy should be

### 1.1 The ultimate objective(s) and institutional framework of monetary policy should be clearly defined in relevant legislation or regulation, including, where appropriate, a central bank law.

### Legal basis and monetary policy objectives
- Constitutional basis: Article 97, Chapter XII of the Constitution of Chile grants the central bank a constitutional rank and autonomy; the basic legal instrument is Law 18,840, “Basic Constitutional Act of the Central Bank of Chile” (central bank law), amended as of May 31, 2002. Any amendments require a quorum of two thirds of the Senate.
- Statutory objective (Section 3): “the Bank shall have as its purposes to provide for the stability of the currency system and the due payment of both internal and foreign debts.” Spanish wording: “la estabilidad de la moneda y el normal funcionamiento de los pagos internos y externos.”
- Translation/clarification: A preliminary change in translation to “the Bank shall have as its purposes to provide for the stability of the currency and the normal functioning of external and internal payments” is under consideration; this translation will not be an official rendering of the law.
- Institutional evolution: In 1999 the central bank announced the suspension of the exchange rate band and the adoption of an explicit inflation targeting framework; subsequent communiqués announced publication of monetary policy reports and a detailed Board regulation.

### Assessment of objectives and autonomy
- Observed: Target and instrument autonomy are strong and enshrined in the Constitution; the central bank law also provides safeguards for accountability.
- Commented risks and mitigants:
  - The statutory wording allows flexibility in interpretation (could support inflation targeting or fixed exchange rate), which may create ambiguity—particularly the phrase “normal functioning of external and internal payments” and potential interpretation of “currency stability” as exchange rate stability rather than price stability.
  - These risks are mitigated in practice by extensive public disclosure (notably Board communiqués) regarding the inflation targeting regime.
  - Recommendation: finalize the official English translation of “estabilidad de la moneda” to replace “stability of the currency system” with “currency stability.”

### Public disclosure of objectives and transmission
- Legislative specification: Objectives are specified in legislation (Section 3).
- Public explanation: Objectives and exchange rate policy are disclosed on the Bank’s website (http://www.bcentral.cl/eng/funorg/functions/05.htm); a more specific statement of objectives and the transmission mechanism is at http://www.bcentral.cl/eng/stdpub/publications/policies/polit03.htm.
- Other disclosure channels: publications program, concluding statements of Monetary Policy meetings, seminars by Bank officials.

### Responsibilities and authority to use instruments
- Statutory responsibilities (Section 3): regulating credit and currency in circulation and the performance of credit transactions and foreign exchange; issuance of regulations on monetary, credit, financing and foreign exchange matters.
- Authority to use instruments: Sections 34 (regulation of the stock of money in circulation and credit), 35 (financial sector and capital market regulation), and 36 (maintenance of financial sector stability) endow the Bank with authority to use instruments to pursue policy objectives.
- Assessment: Observed — legislation specifies responsibilities and grants instrument authority.

### Institutional responsibility for foreign exchange policy
- Statutory references: Foreign exchange regulation referenced in Section 3 and elaborated in Subtitle 8; statute does not explicitly assign institutional responsibility for choice of exchange rate regime.
- Operational stance (website): Since the shift to a free-floating regime in September 1999, the Bank is committed to maintain inflation within the target range while the market determines the currency value; exceptional interventions are possible and described as “transparent, well-founded measures” with explicit definitions of periods and amounts.
- Additional guidance: Rationale for exceptional interventions summarized in a box in January 2003 Monetary Policy Report.
- Assessment: Observed — Charter gives BCCh clear responsibility for performing and regulating foreign exchange transactions, but does not explicitly refer to institutional allocation of responsibility over choice of exchange rate regime. In practice, the central bank has set the exchange rate regime (1999 decision to suspend exchange rate band and announce explicit inflation target). Presence of the Minister of Finance (with right of veto) on the Board provides implicit agreement between BCCh and government. Suggestion: responsibility for setting the exchange rate regime could be more clearly spelled out.

### Accountability modalities and legal remedies
- Reporting requirements (Section 4): Bank must inform the President of the Republic and the Senate regarding its policies and regulations with general applicability.
- Judicial recourse (Section 66): Decisions, regulations, resolutions, orders or instructions issued by the Bank under Sections 34, 35, 36, 58, and 61 and in Subtitle Eight of Title III may be appealed by the interested party to the Court of Appeals of Santiago.
- Assessment: Observed — broad modalities of accountability are specified in legislation. Comment: stronger autonomy requires stronger safeguards for accountability; de jure obligations are narrow (provide information), but de facto the Bank provides extensive explanations.

### Government override and conflict resolution procedures
- Minister of Finance participation (Section 19): Minister (or deputy) may attend Board meetings, including monetary policy meetings, with the right to be heard.
- Suspension/veto procedures:
  - Finance Minister may suspend application of any Board motion or resolution for up to 15 days, provided the totality of Board members do not insist on its implementation (in which case suspension is overruled).
  - During suspension, if so requested by the Minister, the Governor must call a meeting within three working days.
  - If existing rules expire during suspension, such rules are extended until suspension ends and disclosed in the Official Gazette.
- Presidential removal powers:
  - President could dismiss the Governor upon a reasoned request of at least three Board members, requiring a simple majority approval by the Senate.
  - President may remove any or all Board members for voting for measures contrary to central bank objectives that create direct and clear damage to the national economy; removal requires Senate majority approval.
- Assessment: Observed. Comment: Some central bank laws include conflict-resolution procedures requiring both parties to publish statements if disagreement arises; such a provision could enhance BCCh leverage in public disagreements. Current context: history of fiscal discipline (informal fiscal rule since March 2000) and BCCh’s communications mitigate risks.

### Appointment, terms, and removal of governing body members
- Appointment and terms:
  - Board members appointed for staggered renewable terms of ten years (Sections 7 and 8) by the President with prior Senate approval via executive decree through the Ministry of Finance.
  - Governor appointed by the President from among Board Members to chair the Board for a five year renewable term (or until expiration of Board membership term, whichever comes first).
  - Vice-governor elected by Board for duration of Board appointment.
  - Board members precluded from other activities except teaching or academia.
- Dismissal:
  - Section 16: President may dismiss Chair/Governor upon justified request of at least three members for non-compliance with Board policies or regulations; dismissal requires prior Senate approval sought within thirty days. Dismissed person may be reappointed after ten years.
  - Section 17: President may remove any or all Board Members for voting in favour of resolutions representing a “material and clear breach of the purposes of the Bank” that caused material damage to the economy; removal requires prior Senate approval and a hearing before the Senate; removed members cannot be reappointed for ten years.
  - Board members can be removed via accusation to the Court of Appeals of Santiago for conflicts of interest or abuse of position.
- Assessment and comments:
  - Observed. Best practice suggests terms should exceed the electoral cycle of appointing authority. Potential issues:
    - Governor’s term could fall within the electoral cycle, creating incentives for partisan behavior to secure reappointment.
    - Board members’ renewable ten-year terms can lead to extended tenures (up to twenty years if renewed).
  - Consideration: introduce restrictions on subsequent service for central bank officials (cooling-off periods) to guard against conflicts of interest.
  - Note: Article 54 of the Constitution precludes BCCh Board members from running for election to the Senate or Congress.

### Institutional relationship between monetary and fiscal operations
- Statutory coordination:
  - Section 6 requires the central bank to consider the general orientation of the Government’s economic policies when passing Board resolutions, subject to primacy of Section 3 objectives.
  - Section 53 authorizes the Bank to obtain from public sector entities any information it may deem necessary.
  - Section 4 allows the Bank to advise the President upon request.
- Finance Minister role:
  - Section 19 grants the Minister of Finance the right to attend Board meetings, be informed in advance in writing of meetings and agenda, and suggest resolutions for the next meeting.
- Assessment: Observed — provisions, permanent representation of finance ministry on the Board, and information sharing support an interpretation of coordination between monetary and fiscal authorities.

### Prohibition on advances to government
- Statutory prohibition (Section 27): “No public expenditure or credit of whatsoever nature may be financed either directly or indirectly with loans granted by the Bank.” Exception: foreign war or threat of foreign war, qualified by the Council on National Security via secret resolution.
- Constitutional backing: Prohibition of direct or indirect credit to government (except for public financial institutions) is enshrined in Article 98 of the Constitution.
- Disclosure of amounts/terms: Amounts of such facilities are disclosed in the central bank balance sheet and annual report.

*Source: _cr04326 - 1.1 The ultimate objective(s) and institutional framework of monetary policy should be clearly defined in relevant legislation or regulation, including, where appropriate, a central bank law.*

### Section 37 allows the BCCh to charge a fee for the services it carries out on behalf of the

### Section 37 allows the BCCh to charge a fee for the services it carries out on behalf of the

### Fees, deposits, and remuneration
- Section 37: The Minister of Finance may request the central bank to take part in any transaction (compatible with its objectives) on behalf of the State by issuing an executive decree; the Bank is entitled to charge a fee agreed upon with the State in performing its role as fiscal agent.
- Section 34: The Bank may set up deposit accounts on behalf of the Treasury or State enterprises.
- Remuneration of government’s foreign currency deposits held at the central bank: interest rates are market-related rate (discounting for lower risk).
- Fees charged by the central bank are established on a cost recovery basis.

### Central bank participation in government securities markets
- Section 27: The Central Bank of Chile is precluded from direct central bank participation in the markets for government securities; "Under no circumstances... shall the Bank acquire securities issued by the state, its agencies or enterprises."
- The wording suggests the prohibition applies to primary and secondary markets, given that open market operations take place through regular auctions of promissory notes issued by the central bank.

### Central bank involvement in the rest of the economy
- Equity ownership:
  - Participation is limited to the financial sector.
  - Historical involvement stems from the bailing out of banks during the 1983 crisis and subsequent balance sheet exposures.
  - Legal and regulatory responses cited: Acuerdo N° 1450-06-820712; Acuerdo N° 1555-07-840209 and modifications; Law N° 18.401 (26.01.85) modified by law N° 18.818 (01.08.89); Law N° 19.396; Acuerdo N° 476-02-960118.
- Membership on governing boards: BCCh is represented in bodies including the copper commission Cochilco, the secretariat against trade distortions, and the foreign investment committee.
- Procurement:
  - For sizable contracts, calls for offers are published in the Official Gazette and regulated by Ley sobre Contratos Administrativos No.19.911.
  - Procedures set out by the Board in the Compendio de Normas Administrativas Internas; specific issues in Procedimientos Administrativos de la Gerencia de Administración y de Contabilidad.
- Provision of services for a fee: Only fees permitted relate to its role as fiscal agent (Section 37) and services other than banking provided to financial institutions (Section 54).
- Assessment: Broadly Observed.
- Comments: Internal audit provisions in Section 26 are not yet publicly disclosed; Chapter V of internal norm codes regarding acquisitions and procurement modalities will shortly be published on the BCCh web-site. A planned publication summarizing BCCh addresses at the annual meeting of the Centro de Estudios Monetarios de Latin America is noted.

### Capital, profit allocation, and reserves
- Capital:
  - Section 5 specifies initial capital of the Bank amounts to $500 billion.
  - Capital may be increased by decision of the majority of Board Members, through capitalization of reserves and adjusted by means of monetary correction.
  - By justified decision of the majority of the Board Members, the Bank may request the Minister of Finance to increase its capital or make specific contributions on account of funds to be appropriated under the Nation’s Budget Act.
- Profit allocation:
  - Section 77: Up to 10 percent of any surplus is to be allocated to constitute reserves, if the Board so decides.
  - The resulting balance would then be transferred to fiscal revenue, unless the whole or part is applied by law to increase the capital of the Bank or its reserves.
  - Any deficit from any fiscal year is to be offset against existing reserves.
- Assessment: Observed.
- Comments: Suggestion that a clearly defined limit on allocation of profits to general reserves until a specified threshold is reached may be included; a certain percentage of monetary liabilities in the range of 5 to 10 percent could be a better proxy for the risk such reserves are expected to cover.

### Agency roles performed on behalf of the government
- General: Section 37 allows the BCCh to act on behalf of the State when requested by the Minister of Finance and to charge agreed fees.
- (i) Management of domestic and external public debt and foreign exchange reserves:
  - Permissible transactions include repayment and servicing of public debt, conversion and renegotiation.
  - The Treasury must previously provide the necessary funds to the Bank; the Bank may charge a fee agreed with the State.
  - The Bank must maintain information systems on foreign trade operations regarding their foreign exchange implications.
  - Standards and procedures for reserve management are drawn up by the Board and implemented by the International Division in conjunction with foreign investment banks of high calibre.
- (ii) Banker to the government:
  - Section 55 allows the Bank to open checking accounts to the Treasury and other state entities, agencies or enterprises.
  - Issuance of general conditions for such accounts is determined by Board majority.
  - Examples: Copper Stabilization Fund, Oil Price Stabilization Fund, and foreign exchange deposits are accounted for in the central bank balance sheet.
- (iii) Fiscal agent of the government:
  - The Bank may participate and operate with foreign or international financial bodies; contract credits abroad; issue securities and place them on international markets; grant credits to international or foreign states, central banks, banks and financial institutions when consistent with its objectives; and maintain, manage and dispose of foreign currency reserves.
  - Authority for international transactions detailed in Section 38.
- (iv) Advisor on economic and financial policies and international cooperation:
  - Section 4: The Bank advises the President of the Republic, upon request, in all matters within its duties and organizes seminars at the request of the Senate Financing Commission.
- Assessment: Observed.

### Allocation of responsibilities for government securities issuance and servicing
- BCCh as fiscal agent represents the Treasury in placement and administration of payment services of bonds issued by the Treasury in UF in the domestic market (Decree No.855; BCCh Board Agreement No.1088E-01-031010 and Operating Regulation).
- BCCh places issued BTU without physical imprint in the primary market, delivering to buyers via the Empresa de Depósito de Valores.
- Institutions allowed to operate in the BCCh primary market: Banks, financial institutions, insurance companies, pension fund managers, mutual fund managers. Other institutions can purchase these debt titles in the secondary market.
- Division of responsibilities between BCCh and the Treasury is defined and published in the cited dispositions.
- Treasury assumes overall responsibility for bond redemptions, interest payment, commissions, fees and other expenses.
- BCCh carries out bond redemptions or services the BTU in the name of the Treasury, deducting the relevant charge from funds deposited at the BCCh.
- Assessment: Observed.

### Monetary policy framework, targets, instruments, and disclosure
- Framework disclosure: Non-technical note and more extensive discussions are available on the BCCh web-site.
- Targets:
  - Inflation target defined as a symmetrical range of from 2 to 4 percent, centered on 3 percent, to be met permanently over a medium-term horizon of two years.
  - Medium-term operating target: changes in the consumer price index (CPI); short-term assessment uses underlying inflation measures including the one registered by the National Statistics Bureau.
  - Macroeconomic models and judgment are used to forecast inflation over a medium-term horizon of 12 to 24 months.
  - The nominal interbank interest rate, or monetary policy rate, is an intermediate target.
- Instruments:
  - Central bank targets the nominal interbank interest rate (tasa de política monetaria) by regulating financial system liquidity through open market operations, purchases and sales of short-term promissory notes, and liquidity deposits and lines of credits (expanded facilities).
  - Reserve requirements tend not to be used as an active monetary policy instrument.
- Assessment: Observed.
- Comments: Planned disclosure of the model underlying the forecasts for inflation noted.

### Monetary policy operations, counterpart rules, and market interventions
- Operations procedures:
  - Open market operations occur through regular Dutch auctions (for financial institutions, pension fund managers, insurance companies and mutual funds) of central bank promissory notes, not government securities.
  - In liquidity shortages, the central bank purchases promissory notes using an overnight repurchasing agreement; to mop up excess liquidity it sells short-term notes in dematerialized form.
  - Liquidity management is based on a cash flow program covering the reserve measurement period; the auctions calendar is provided to the public the day before a new reserve period begins.
  - Day-to-day liquidity management uses repurchase operations or special sales of short-term promissory notes.
  - Liquidity credit line: financial institutions can obtain one-day unsecured loans for limited amounts and by interest rate tranche.
  - Liquidity deposit: allows institutions to deposit temporary liquidity surpluses at the central bank for a minimal return.
- Foreign exchange interventions: Exceptional interventions are reported biweekly in the Economic and Financial Report; announced when the suspension of the band was put into place.
- Counterpart rules and disclosure:
  - Web-site includes regulatory framework and operating guidelines for central bank’s counterparts (compendio de normas financieras relativas...; Compendium of Foreign Exchange Regulations; Procedures Manual and Information Forms).
  - Circulars to banks and correspondence regarding changes in monetary policy instrument settings are published on the web-site.
- Assessment: Observed.

### Monetary policy governance and meeting schedule
- Organizational disclosure:
  - Organizational chart including Board members, General Manager, General Counsel, and Division Managers is published on the web-site, including curricula vitae.
  - Functions of the Board set out in Section 18: establish general policies; issue regulations; approve internal staff regulations; appoint and terminate key officials; open or close domestic and foreign agencies; determine working days and business hours (publishing in the Official Gazette); approve or reject annual financial statements and decide on write-offs and reserves; delegate certain administrative and operational authority.
  - Minutes of Board meetings, including individual votes and arguments, are published forty five days after the relevant meeting.
  - Specific regulations for functioning and attendance to monetary policy meetings are presented on the web-site.
- Assessment: Observed.
- Comments: Discussion of potential alternative Board structures, including non-executive directors and a separate supervisory board, to help depoliticize decision-making; commentary on full-time versus part-time membership and conflict-of-interest mitigation.
- Meeting schedules and advance notice:
  - Two types of Board meetings: ordinary and monetary policy meetings.
  - Policy decisions made at monetary policy meetings, held on a monthly basis and publicly announced six months in advance.
  - Ordinary meetings are regularly scheduled “once a week, preferably on Thursdays.”
  - Notice of meetings, including agenda, draft motions and any relevant background information, is to be sent to all Board members and to the Finance Minister via the Board secretariat with 48 hours’ notice.
- Assessment: Observed.

*Source: _cr04326 - Section 37 allows the BCCh to charge a fee for the services it carries out on behalf of the (PDF chapter/section).*

### 2.3 Changes in the setting of monetary policy instruments (other than fine-tuning

### _cr04326 - 2.3 Changes in the setting of monetary policy instruments (other than fine-tuning

### Changes in the setting of monetary policy instruments (2.3) — Description and practice
- Decisions pursuant to the deliberations of the monetary policy meetings of the Board come into effect with the publication of the relevant resolution in the Official Gazette.
- Changes in the setting of monetary policy instruments are:
  - explained in the Monetary Policy Report;
  - communicated immediately (in Spanish and English) after the closing of the monetary policy meeting.
- Official statements are publicly available on the web-site at http://www.bcentral.cl/esp/prensa/comunicados/politicamonetaria/index.htm
- Assessment: Observed

### Disclosure of main considerations underlying monetary policy decisions (2.3.1)
- At the end of each monetary policy meeting, the Board approves its official statement for external distribution, thereby notifying the public of any decisions taken.
- The summary of monetary policy meetings is approved at the following ordinary meeting and is made public six weeks after that meeting was held.
- The Bank publishes the Monetary Policy Report three times a year. The Report:
  - analyses economic and financial conditions, the basis of policies applied, and the most important prospects in the short and medium term.
- Assessment: Observed

### Periodic public statements on progress and prospects (2.4, 2.4.1, 2.4.2)
- Statutory reporting:
  - As required by Sections 78 to 80, the Bank prepares an annual report on its previous year's activities, including financial statements with notes and opinion; submitted to the ministry of finance and the Senate prior to April 30 of each year and available to the public at the Bank’s offices.
  - Prior to September 30 of each year, the Board submits an evaluation of progress made regarding the policies and programs for the current year to the ministry of finance and the Senate, together with a report on proposed policies and programs for the next calendar year, outlining economic projections and possible effects on major items of the financial statement.
- Monetary Policy Report (published three times a year):
  - Presents an evaluation of past trends in inflation.
  - Presents a baseline scenario with explicit forecasts for future inflation (and growth).
  - Declares the risks the Board perceives could affect the baseline scenario over the next 12 to 24 months.
  - Main objectives: (i) inform and explain the Board’s view of recent and expected inflation trends and their consequences for monetary policy; (ii) publicly explain the medium-term framework used by the Board; (iii) provide information useful for economic agents’ expectations regarding future inflation and output trends.
  - Current issue may be purchased at a cost of US$20; all previous issues (in Spanish and English) are available for downloading from the web-site at http://www.bcentral.cl/esp/estpub/publicaciones/politicas/polit02.htm
- Assessment: Observed
- Comment: Publication of the Monetary Policy Report helps focus attention on inflation projections; credibility depends on whether the BCCh will react in time and appropriately to changes in inflation forecasts. Survey of economic expectations: http://www.bcentral.cl/esp/infoeconomica/informes/expectativas/

### Public consultations on substantive technical regulatory changes (2.5)
- The BCCh gathers comments from commercial banks via meetings and through its web page.
- Two recent web-based public consultations:
  - Transition to a payment system based on RTGS (July 2003) — backed by seminars and press statements.
  - Regulations regarding maturity mismatch (April 2003).
- In both cases, comments were invited over a period of one month.
- Assessment: Observed

### Disclosure of data reporting regulations (2.6)
- Financial regulations with information on data reporting requirements are found on the web-site at http://www.bcentral.cl/esp/normativa/financieras/
- Circulars and letters to financial institutions are published at http://www.bcentral.cl/esp/normativa/cartascirculares/index.htm
- Assessment: Observed

### Public availability of information on monetary policy (Section III: 3.1–3.4)
- Legal/statutory and dissemination framework:
  - Section 53 requires compilation and publication of macroeconomic statistics (monetary and foreign exchange, balance of payments, national accounts, social accounting systems).
  - The Board establishes the nature, contents and periodicity of disclosures by resolution published in the Official Gazette.
  - The central bank web-site provides series for principal financial and macro-economic variables, as established by the IMF’s Special Data Dissemination Standard (SDDS) to which Chile subscribed in 1997.
  - A 2001 ROSC report concluded Chile meets SDDS specifications for timeliness, coverage and periodicity and the dissemination of advance release calendars.
  - National Summary Data Page (NSDP) Advanced Release Calendar Economic Data Base: http://si2.bcentral.cl/basededatoseconomicos/900base.asp?usuIdioma=I
- Balance sheet and market operations disclosure (3.2, 3.2.1, 3.2.2, 3.2.3, 3.2.4):
  - Annual audited financial statements published in the Official Gazette and in a national newspaper before April 30 of each year; Financial Statements at http://www.bcentral.cl/eng/funorg/financialstatements/
  - Selected information on aggregate market transactions disclosed on an annual and a monthly basis in central bank publications.
  - Monthly financial statement is required by law and published in Economic Financial Indicators; from January 2004 this was superseded by a new Monthly Bulletin: http://www.bcentral.cl/esp/estpub/publicaciones/economiageneral/ecogen01.htm
  - The Economic and Financial Report (from January 2004 superseded by Monthly Bulletin) includes the origin of variations in the monetary base.
  - Aggregate information on domestic loans to banks, financial companies and other institutions is provided in the financial statements.
  - Information on foreign exchange reserve assets, liabilities and commitments is published, including the international liquidity statement and foreign currency position; BCCh subscribes to the SDDS.
- Public information services and publications program (3.3, 3.3.1, 3.3.2, 3.4):
  - Resolutions or decisions requiring public knowledge published in the Official Gazette (Section 67). Private Board resolutions are notified by inclusion in a summary notice affixed for at least three working days inside the Bank’s main office and branches.
  - Main publications include: Monetary Policy Report; Economic Policy Papers; Monetary Policy of the Central Bank of Chile: Objectives and Transmission; the Economic and Financial report; Annual Report. Publications page: http://www.bcentral.cl/eng/stdpub/publications/bcch/bcch01.htm
  - A quarterly publication “The Central Bank of Chile and the Economy” (since January 2003). A new Monthly Bulletin (from January 2004) is the main publication containing relevant data: http://www.bcentral.cl/esp/estpub/publicaciones/economiageneral/ecogen01.htm
  - Texts of statements and PowerPoint presentations by Board and staff members are available on the web-site in the language of the original presentation. English documents posted for 2003 Board members and staff at provided URLs.
  - Regulations are available on the web-site at http://www.bcentral.cl/esp/normativa/ and are published in the Official Gazette.
- Assessments: All listed practices in Section III are assessed as Observed.

### Accountability and assurances of integrity (Section IV: 4.1–4.4.1)
- Accountability to public authorities (4.1):
  - Section 4: “the Bank shall inform the President of the Republic and the Senate with regard to the policies and regulations of general applicability issued by the Bank...” and shall advise the President upon request.
  - Speeches of central bank officials explaining monetary policy objectives and performance are on the web-site.
  - Assessment: Observed
- Audited financial statements and disclosure (4.2, 4.2.1):
  - Balance sheets, financial statements and reports listed on web-site; latest pertaining to 2001 at time of report: http://www.bcentral.cl/eng/funorg/financialstatements/
  - Financial statements are prepared by external auditors appointed by the Board from among those registered with the Superintendence of Banks and Financial Institutions; statements contain summary of significant accounting principles and notes from auditors.
  - Assessment: Observed
- Internal governance and disclosure of internal norms (4.2.2):
  - Internal audit provisions (Section 26) not yet publicly disclosed; Chapter V of internal norm codes regarding acquisitions and procurement will shortly be published on the BCCh web-site.
  - Planned publication of a brief note drawn from BCCh addresses at the annual meeting of the Centro de Estudios Monetarios de Latin America on internal governance.
  - Assessment: Broadly Observed
  - Comment: Disclosing internal governance procedures would enhance public perception of integrity; initiative to publish internal norms is welcome.
- Expenses and revenues disclosure (4.3):
  - Income statement presented within financial statements attached to the annual report and published on the web-site; includes personnel and administrative expenses.
  - Assessment: Observed
- Standards on conduct and conflicts of interest (4.4, 4.4.1):
  - Section 13: Board members precluded from intervening or voting on resolutions in which they may have a commercial interest; Board membership incompatible with service in private sector, state-owned institutions, banking enterprises and financial companies; participation in non-profit institutions and academia permitted.
  - Prior to taking office, Board members must declare interests under oath, filed with a notary and held by the vice-governor.
  - No current public disclosure of staff personal affairs standards; a short synthesis of internal rules regarding staff personal financial affairs will shortly be published on the web-site.
  - The code of conduct and provisions against conflict of interest lie within internal documents referred to in Section 81; unspecified aspects fall within the Labour Code.
  - Assessment: Broadly Observed
  - 4.4.1 (legal protections for officials and staff): According to Section 21, Board members are under no obligation to appear in court, except as provided for in the codes of civil and criminal procedures.
  - Assessment: Not Applicable

### Summary observance metrics (Table 2)
- Observed: 42 — practices listed include 1.1; 1.1.1; 1.1.2; 1.1.3; 1.1.4; 1.1.5; 1.1.6; 1.1.7; 1.2; 1.2.1; 1.2.2; 1.2.3; 1.2.5; 1.3; 1.3.1; 1.3.2; 2.1; 2.1.1; 2.1.2; 2.2; 2.2.1; 2.3; 2.3.1; 2.4; 2.4.1; 2.4.2; 2.5; 2.6; 3.1; 3.2; 3.2.1; 3.2.2; 3.2.3; 3.2.4; 3.3; 3.3.1; 3.3.2; 3.4; 4.1; 4.2; 4.2.1; 4.3
- Broadly observed: 3 — practices 1.2.4; 4.2.2; 4.4
- Partly observed: 0
- Not observed: 0
- Not applicable: 1 — practice 4.4.1

### Recommended action plan (Table 3)
- Practices 1.2.4 and 4.2.2:
  - Pursue publication of internal norms regarding acquisitions and procurement on the BCCh web-site together with a brief note on internal governance.
- Practice 4.4:
  - Pursue the web-site publication of a note on internal rules regarding the personal financial affairs of the staff.

*Source: IMF Financial Sector Assessment Program—Monetary Policy transparency assessment in _cr04326 (extract), as provided in the supplied content.*

### 8.      In the Chilean authorities’ view, there is no need for clarifying the institutional

### In the Chilean authorities’ view, there is no need for clarifying the institutional responsibility for foreign exchange rate policy

### Legal basis and institutional role of the BCCh
- The BCCh is a public law (derecho público) institution, autonomous and of a technical nature.
- The Constitutional Organic Act (COA) requires the BCCh to “provide for the stability of the currency and the normal functioning of external and internal payments.”
- The BCCh receives public authorization to:
  - regulate the amount of currency and credit in circulation;
  - perform credit and foreign exchange transactions;
  - exclusively issue regulatory provisions regarding monetary, credit, financing and foreign exchange matters.
- The exclusiveness to issue foreign exchange regulations derives from the fact that, before the COA’s enactment, such authority pertained to the Monetary Council and was later transferred to the BCCh, in accordance with the constitutional autonomy granted by the 1980 Constitutional Act of Chile (CA).
- The BCCh has always been empowered to perform and regulate foreign exchange transactions aimed at accomplishing its institutional role.

### Judicial and legal characterizations of BCCh authority
- Based on the foregoing and on several judicial pronouncements:
  - (i) the BCCh is independent from the State of Chile in the fulfillment of the public duty conferred to it by the law;
  - (ii) it is subordinated not to a public authority, but to the 1980 CA and the COA that provide for its composition, organization, duties, and authorities;
  - (iii) it is the exclusive entity empowered to issue, among others, regulatory provisions regarding foreign exchange matters.
- Latest judicial decision cited: Court of Appeals of Santiago dated September 26, 2003, confirmed by the Supreme Constitutional Court.

### Relationship between the BCCh and the Executive
- The President of the Republic lacks authority to regulate matters exclusively conferred to the BCCh by law.
- Sections 6 and 7 of the 1980 CA penalize infringement with the nullity of the corresponding act, without prejudice to administrative liabilities.
- COA provisions on BCCh’s public duty include:
  - (i) to perform in accordance with the general orientation of the government’s economic policy;
  - (ii) to inform the President of the Republic and the Senate as provided for in the law;
  - (iii) to include the Minister of Finance at Board meetings with the right to be heard and:
    - the power to suspend the enforceability of any decision or resolution passed by the Board within a period not to exceed 15 days;
    - the right to veto the enforceability of foreign exchange restrictions, in which event the respective restriction may be adopted only with the favorable vote of all the Board members.

### BCCh powers to engage in and regulate foreign exchange transactions
- The BCCh may:
  - purchase and sell foreign currency;
  - issue notes payable in US dollars or denominated in foreign currency;
  - enter into derivative transactions and hedge agreements.
- The BCCh may regulate foreign exchange transactions by setting limitations and restrictions seeking to fulfill its legal purpose.

### Response to IMF assessment and practice history
- The Chilean authorities reject the implicit view in Principle 1.1.4 that “... the BCCh statute does not explicitly refer to the institutional responsibility for the choice of the exchange of the exchange rate regime.”
- The BCCh modified foreign exchange policy in use of its exclusive and clear legal authority.
- Several examples, both prior to the COA and after its enactment, demonstrate the exclusive exercise of its authority to establish and amend components of the foreign exchange regime in effect in Chile.
- Those resolutions were adopted within the prevailing legal framework, with participation of the Executive Power acting through the Ministry of Finance as provided in the COA, published in the Official Gazette, and reported to the Senate in the form and channels set forth in the COA.

### Transparency and governance measures under way
- Steps being taken to increase transparency with respect to principles 1.2.4, 4.2.2 and 4.4 include:
  - short-term publication of procurement procedures;
  - publication of a set of norms governing the ethical and personal conduct of the staff;
  - a more detailed description of the functioning of the internal audit unit will be made public as soon as it becomes available.

*Source: _cr04326 - 8.      In the Chilean authorities’ view, there is no need for clarifying the institutional*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04326.pdf_