Post-Pandemic Changes to Chile’s Financial Markets: Chile

Selected Issues Papers, February 25, 2025

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Pension fund withdrawals, rising public debt, and the Central Bank of Chile’s pandemic liquidity injections have reshaped Chile’s financial landscape.
Demand for local bonds has diminished, leading large non-financial corporations and the government to rely more on foreign investors.
Overall, Chile’s financial depth has diminished.
Markets have become more volatile and more sensitive to shocks.
Restoring pension funds and continuing to strengthen market resilience and crisis response capabilities are essential for ensuring future financial stability.

Pension fund withdrawal: Identified as a primary factor reducing domestic investor demand for local bonds.
Public debt dynamics: Rising public debt increased issuance needs and altered market composition.
Central Bank actions: Pandemic liquidity injections by the Central Bank of Chile materially changed market liquidity conditions and balance sheets.

Reduced financial depth: Aggregate measures of financial depth have declined following the pandemic-era developments.
Greater volatility: Market volatility increased, and sensitivity to external and internal shocks rose.
Increased foreign reliance: Larger share of financing for large non-financial corporates and sovereign borrowing shifted toward foreign investors.

Restore pension funds: Rebuilding pension fund assets and domestic investor participation is central to re-deepening local financial markets.
Strengthen market resilience: Continue efforts to bolster market structures to absorb shocks.
Enhance crisis response capabilities: Improve tools and frameworks for crisis management to reduce systemic vulnerability.

Sign-Restriction VAR Analysis on Bond Issuance
- Sign-Restriction VAR Analysis on Bond Issuance (Markdown version)
- Sign-Restriction VAR Analysis on Bond Issuance (PDF)