Document of

The World Bank

FOR OmCIAL USE ONLY

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Repwt No. 5433-CH

STAFF APPRAISAL REPORT

CHILE

INDUSTRIAL FINANCE RESTRUCTURING PROJECT

May 20, 1985

Projects DepartmentLatin America and the Caribbean Regional Office

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CURRENCY EQUIVALENTS

All currency amounts are expressed in Chilean Pesos (Ch$)and US Dollars CUS$).

Chile has a crawling peg that resulted in a nominal devaluation of 37Z in 1984.

Exchange rate as of December 31, 1984US$1.00- Ch$124Ch$1.00- USSO.008

Average Exchange Rate B

1982 1983 1984

US$1.00 = Ch$50.91 US$1.00 - Ch$78.84 US$1.00 - Ch$96S.4/Ch$ 1.00- US$0.0196 Ch$ 1.00- US$0.0127 Ch$ 1.00- US$0.0102

Weights and MeasuresMetric System

Government of Chile Fiscal YearJanuary 1 - December 31

GLOSSARY OF ABBREVIATIONS

BHC Banco Ripotecario de Chile (now in liquidation)and, by extension, thle name of the businessconglomerate that controlled it

BHIF Banco Elipotecario de Fomento Nacionala private bank

CB Central Bank of Chile

Colocadora Nacional Colocadora Nacional de Valores. NationalSecurities Underwriter, a private bank.

ERR Economic Rate of Return

FRR Financial Rate of Return

GDP Gross Domestic Product

IDB Inter-American Development Bank

IFC International Finance Corporation(Member of the World Bank Group)

LIBOR London Interbank Offered Rate

PROGRESA One of the two largest businessconglomerates in Chile

SUPERINTENDENCIA Superintendencia de Bancos (Superintendencyof Banks and Financial Institutions)

UF Unidad de Fomento(Financial Unit of Account which reflects themovements in the Country's Consumer Price Index)

FOR OFFICIAL USE ONLY

STAFF APPRAISAL REPORT

CHILE

INDUSTRIAL FINANCE RESTRUCTURING PROJECT

TABLE OF CONTENTS

Page No.

LOAN AND PROJECT SUMMARY .......................................... i

I. ECONOMIC AND FINANCIAL ENVIRONMENT . ....... .

A. Background ..... 1B. Recent Developments and Tren d* 1.............

II. THE FINANCIAL AND INDUSTRIAL SECTORS ....... .................. 2

A. The Financial Sector e cr..... ........... . ...... 2

B. The Industrial Sector. .............................. 5

Mi) Industrial Investment Requirements. 6(ii) Industrial Restructuring 7

C_. Legal I s s u e s .................... B... D. Bank Strategy in the Industrial Sector. 9

Ill. THiE PROJECT .............................................................. 10

A. Project Objectives and Description ...................... . 10B. Credit Component ....... .............. ..... 11

C. Onlending Terms and Conditions . . ......................... 12D. Institutional Setting ... . ..................... 13E. Subproject Appraisal and Supervision ..................... 14F. Procurement and Disbursement ........................... . 15G. Accounts and Auditing .................................... 16H. Participating Intermediaries ............................. 16I. Benefits and Risks . ................. .. 17

IV. AGREEMENTS REACHED AND RECOMMENDATIONS ................... ...... 17

This report is based on tHie findings of an appraisal mission which visitedChile on October - November 1984. The mission comprised Messrs. M. Hinds(LCPI2), M. Long (IND), N. De Souza (LEG), P. Jones (IFC), P. Glaessner, E.Saucedo and Ms. R. Halvorson (Consultants).

This document has a restricted disibution and may be used by recipients only in the performnceof their official duties Its contens may not otherwise be disclosed without World Dank authoriation.

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REPUBLIC OF CHIlE

INDUSTRIAL FINANCE RESTRUCTURING PROJECT

LOAN AND PROJECT SUNKARI

Borrower: Republic of Chile

EzeutingAgencty Central Bank of Chile (CB)

kAount: US$100.0 million equivalent

Terms: Repayment in 15 years, including three years of grace, at thestandard variable interest rate.

eBmdlng

Terms: The Central Bank as fiscal agent for the Government would on-lend loan funds to commercial banks in US dollars or inChilean pesos. US dollar-denominated loans to commercialbanks would have rates equal to the Bank's interest rate plusa spread to compensate the Central Bank for the Bank's com-mitment fees and for the cost of operating the Technical Unit(TU). Commercial banks would onlend these funds charging athree percent spread. Interest rates on peso-denominatedloans to commercial banks and subloans to beneficiary enter-prises would be equivalent to those of dollar-denominatedsubloans and would be expressed in real terms calculated upona principal expressed in Unidad de Fomento (UF), by deflatingthe respective dollar rates by the United States ConsumerPrice Index (CPI). This would ensure that real interestrates would be the same for both dollar- and peso-denominatedloans and subloans. The repayment terms for subloans wouldbe up to 15 years, including a grace period of up to threeyears.

ProjectObjectives: The proposed project would help the Government to undertake a

financial restructuring program of industrial corporations ona selective basis. The project is conceived as a pilot ef-fort that would be replicative in restructuring efforts car-ried on outside of the project.

ProjectDescription: The project would include assistance for: (a) establishing

and financing the institutional framework through which cor-porate restructurings would be devised, negotiated, and im-plemented; and (b) financing the purchase of capital goodsand working capital necessary to maintain and increase pro-duction.

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ProjectBeneflts: The proposed project would help to remove the financial dead-

lock that is hindering the recovery of industrial productionin Chile through the establishment of an institutional frame-work geared to promote the financial restructuring of selec-ted industrial companies and the provision of foreign ex-change financing needed by the restructured companies tocarry out required investments.

Project Risks: Credit demand could be curtailed if: (a) the economicsituation deteriorates further; (b) the Technical Unit failsto promote restructurings or proves incapable of analyzingthem properly; (c) individual restructurings prove too dif-ficult to be completed within the proposed loan's commitmentperiod; or (d) after being restructured, the firms obtaincredit from other sources. To mitigate these risks, theTechnical Unit would: (i) have detailed Operating Pol4ciesand Administrative Procedures in line with the project's ob-jectives; and (ii) be staffed by high-level professionalswith experience in corporate restructurings. The benefits toChile would be substantial, and the experience gained in thisoperation would be useful in the design of programs to sup-port firms in financial distress. Therefore, the overallbenefits of the project are expected to outweigh the riskssignificantly.

Estimated Costs: Local Foreign Total(USS Million Equivalent)

Investment Sub-Projects 147.6 147.4 295.0

Technical Assistance toTechnical Unit 2.4 2.6 5.0

Total Financing Required 150.0 150.0 300.0

Fimencing Plan:

Government 100.0 0.0 100.0

Other Sources 50.0 50.0 100.0

Bank 0.0 100.0 100.0

Total 150.0 150.0 300.0= = =~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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EstlatedDlaburanemts: Bank FY: 196 1987 1988 1989 1990 1991 1992

Annual 1.7 10.2 19.4 30.4 18.0 15.7 4.6Cumulative 1.7 11.9 31.3 61.7 79.7 95.4 100.0

Rate of Return: Not Applicable

I. ECONOMIC AND FINANCIAL ENVIRONMENT

A. Background

1.01 Notwithstanding its strong recovery in 1984, the Chilean eronomyis still suftering from one of the worst crises in its modern histcry,following a fall of 14.9% in the country's GDP, in real terms, between 1981and 1983. While this crisis shares, with past cyclical recessions, theprevalence of low copper prices, there is a key feature that sets it apartfrom previous recessions, i.e., the inability of the private sector torepay a substantial portion of its large debt to domestic and foreigncreditors. Service of the external portion of this debt was identified bythe most recent Economic Memorandum on Chile (Report No. 5099-CH) as amajor obstacle to the country's future growth. At the end of 1984, themedium- and long-term Chilean external debt was estimated at US$17.0billion (close to 85% of GDP), with interest payments representing over 40Zof exports in 1983. About 40% of this debt is public; the private sectorowes US$4.5 billion directly to foreign banks and US$6.3 billion throughthe country's financial system. While the growth of the external debt wasfacilitated by the abundant liquidity of international banks during thelate 1970s and early 1980s, the private sector's excessive indebtednesswas, in part, caused by the incestuous relationships between firms andfinancial institutions that prevailed during 1975-1983 in some of thelargest business conglomerates, by the 1979-1982 overvaluation of thecurrency, and, eventually, by distress borrowing at extremely high realinterest rates.

1.02 The Government has made significant efforts, during the last twoyears, to service both public and private external obligations. To reducedomestic demand, it imposed austere monetary and fiscal policies andadopted a crawling peg that has kept the real exchange rate at its lowestvalue since 1978. As a result, the trade balance turned from a US$2.7billion deficit in 1981 to a US$1 billion surplus in 1983, and the currentdeficit of the balance of payments was reduced from US$4.9 billion toUS$1.5 billion during the same period. Most of this adjustment, however,was achieved through a drastic reduction in merchandise imports, which fellfrom US$6.6 billion to USS2.9 billion during the period; in spite of thefavorable real exchange rate, the value of exports declined slightly from1981 to 1983 as a result of falling commodity prices in the internationalmarkets, the depressed condition of Chile's neighboring markets andfinancial problems at the firms' level.

B. Recent Developments and Trends

1.03 The depression bottomed out in late 1983. During 1984, GDP greyat a 6.3% annual rate, and 250,000 additional jobs were created, mainly asa result of expanding domestic demand, boosted by a large public investmentprogram, and of the rescheduling of a substantial portion of the privatesector's domestic debt (para. 2.07). Balance-of-payment problems, however,slowed growth in late 1984. Prices of non-copper exports declined 4.5%,while copper prices dropped 12% to their lowest level since the 1930s. Asa result, despite an almost 10% volume increase in non-copper exports,

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Chile's total export earnings dropped 5%. Simultaneously, importsincreased 18Z over their 1983 level as a consequence of the rising economicactivity. In September 1984, in response to a growing external imbalanceand to declining copper tax revenues, the Government increased the uniformimport tariffs from 20% to 35% and devalued the currency 23%. Thesemeasures were followed by a sharp curtailment of monetary expansion, whichsucceeded in preventing a permanent surge of inflation after the measureswere taken. Also, a new three-year Extended Facility Program wasnegotiated with the IMF.

1.04 In order to sustain the recovery, the Government is undertakinga three-year public investment program with emphasis upon export promotionand job generation. Corporate and individual tax reductions are now inplace in order to stimulate investment and savings, and a general financialplan has been prepared to resolve the financial problems of the bankingsystem (paras. 2.07-2.08). Major reforms in the structure of largebusiness groups have been undertaken, and their ownership conflicts, causedby the financial collapse of their holding companies, are gradually beingresolved. In spite of these actions, the Chilean recovery remainsprecarious, severely constrained by foreign exchange scarcity. Increasedexport earnings depend, in part, upon a rapid expansion of non-copperexports. The Government has established a competitive exchange rate policyand is planning a major enhancement of export incentives, including aprogram to reduce import tariffs to their previous levels. In order tomaintain a moderate rate of growth of GDP, however, Chile also needs asubstantial flow of external capital, which, in the immediate future, willbe difficult to obtain from private sources.

II. THE FINANCIAL AND INDUSTRIAL SECTORS

A. The Financial Sector

2.01 As of November 1984, the Chilean financial system comprised theCentral Bank of Chile (CB), 38 commercial banks (the largest of which,Banco del Estado, is Government-owned) and seven financial companies("financieras'). Commercial banks are multi-banking institutions andoperate at both the short- and long-term ends of the market, financing allkinds of activities and trading in mortgages and comercial paper. Manyfinancieras, much smaller institutions, are associated with commercialbanks. They do not receive demand deposits and account for less than 2%of the total system's outstanding credit. The banking market is highlyconcentrated: of the 38 commercial banks, the five largest account for 60%of the system's credit. Other financial institutions include seven mutualfunds, 12 private pension funds, 51 insurance companies and the SantiagoStock Exchange. The Central Bank is the highest monetary authority in thecountry, sharing with the Superintendency of Banks (Superintendencia) thesupervision of the financial system. It is managed by an ExecutiveCommittee of three members, appointed by the President of the Republic.The Chairman of the Committee is also the bank's president and has a rankequiitalent to that of a cabinet member. The Central Bank undertakes all of

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its credit activities through commercial banks and financieras. TheSuperintendencia is an autonomous body, and its authorities are appointedby the President of the Republic. Both institutions are well run and theirstaffs are highly qualified.

2.02 Several factors led to the creation of large industrial/financialconglomerates in Chile. At the end of the Allende regime, under the threatof widespread confiscations, the prices of all assets fell sharply, andmany of them changed hands at extremely low prices. When the politicalregime was changed, the assets' prices increased again, creating aspeculative mood in the business community. Speculation was furtherencouraged by the sale of most Government-owned firms that the newGovernment undertook shortly after its accession to power. Given thedepressed state of the economy at the time, assets had not yet recoveredtheir equilibrium prices, and those firms were sold in public auctions atvery low prices, mostly to conglomerates formed to purclxse them. As theeconomic situation improved in subsequent years, asset prices increased,and the conglomerates obtained large capital gains. Later in the 19709,the Government denationalized the banks, and most of them were bought bythe newly formed groups, which then used the banks' credit to financefurther acquisitions and, in some cases, to pay for the shares of the banksthemselves. Eventually, these conglomerates established networks offinancial institutions (banks, mutual funds, insurance companies) thatchanneled the cash they needed to keep on growing through acquisitions.Two big groups predominated: the BHC group, controlling Banco de Chile andits subsidiaries (accounting for close to 302 of the financial system'scredit) and the Progresa group, controlling Banco de Santiago. BHIF andColocadora Nacional (accounting for about 20Z of the system's credit).

2.03 The trend toward incestuousness in the relationship betweenfinancial and nonfinancial companies worsened at the end of the decade,when a substantial overvaluation of the Chilean peso created incentives forcross currency speculation. From June 1979 to June 1982, the Governmentfixed the foreign exchange rate in dollar terms in order to reduce domesticinflation to international levels. During that period, prices of domesticnontradeable assets continued rising at the diminishing but still highlocal rate of inflation, while the price of the US dollar remained fixed inpeso terms. This made it profitable to borrow in apparently low-interestdollar-denominated funds to speculate in real estate and inpeso-denominated financial assets. Moreover, cheap imports discouragedtradeable activities, and nontraditional exports, one of the main sourcesof growth in the previous five years, lost international competitivenessand tended to stagnate. As a result, investment in industrial activitiesremained low, while the private sector's external debt was increasingrapidly, from US$2.7 billion at the end of 1978 to US$10.5 billion at theend of 1982. Eventually, close to 60Z of the private sector debt wasdenominated in US dollars, and about 60% of it was invested in activitiesthat do not generate foreign exchange. This credit was highlyconcentrated; at the end of 1982, 19% of the financial system's credit wasallocated to firms related to the creditor banks. One of them, the secondlargest bank in the country, had 42% of its total credit allocated to itsrelated companies. When the devaluation finally took place in June 1982,the price of domestic assets fell drastically in dollar terms, large

capital losses occurred and, in mny cases, the value of the claims onthose assets exceeded the valua of the assers themselves.

2.04 In market economies, louses incurred by defaulting firm arenormally absorbed by their owners, the shareholders of creditor banks, or,if necessary, by the depositors and holders of other liabilities of failedbanks The Government intended to take this approach when it became clearthat several banks would fail as a result of the mounting financialcrisis. In January 1983, however, as public confidence In the bankingsystem eroded because of the mounting debt crisis, the Government providedChS 100 billion in liquidity asistance to support domestic banksfinancially, intervenedl/ five of them, and guaranteed 100S of the valueof deposits. Although, at the time of heavy external borrowing, theChilean authorities had made it clear to all parties involved that nopublic guarantee would be provided for the private debt, in early 19F13, itexplicitly guaranteed the external private debt maturing in 1983-1984 whenit was rescheduled, and provided assurances to international creditors thatthe private financial debt would be serviced adequately during thatperiod. These guarantees, however justified in the Government's view bythe need to preserve the integrity of the financial system and to ensurethe availability of external credit for Chile, effectively blocked the iminmechanism that the market has to allocate losses. As a result, only asmall portion of the losses has been written off by both local and foreignbanks, and there Is a discrepancy between the book value and the real valueof the assets.

2.05 Banks are trying to avoid writeoffs by clinging to unrealisticrepayment agreements they have reached with debtor firms and amongthemselves (para. 2.11). This attempt to forestall losses that havealready been incurred has paralyzed the financial markets, at a very highcost to the Chilean economy. As a resulL. the losses that the bankingsystem will eventually have to absorb in Its loans to these firms haveincreased considerably. Furthermore, productive activities are beinVhindered by the financial deadlock since resources are being kept away fromefficient companies in order to sustain firms that, de facto, went bankruptyears ago.

2.06 Since 1982, the Chilean banking system has suffered lossesequivalent to more than three times its equity capital and has been able tosurvive only because of the strong support it has received from the CentralBank. The losses, however, were concentrated In banks that had beencontrolled by large conglomerates, and, especially, in the five banks nowintervened- by the Superintendencia, which account for 4t1 of the credit

and bh% of the non-performing assets of the banking system. Some of thenon-intervened banks, however, seem to be in conditions similar to those ofthe intervcned onen, and only one Chilean bank (BICE) has non-performingassets below 10X of its portfolio (Annex 3. Table 1).

I/ -Intervention,' in the Chilean context, means the taking over, by the Superin-tendency, of the day-to-day management of financidl institutions, without af-fecting the institutions' ownership structure.

2.07 The Government implemented, in early 1984, a scheme to regularizethe financial help provided to the non-intervened financial system. Underthis scheme, participating banks and financieras sold their worst portfolioto the Central Bank, receiving, in payment, the funds that the Central Bankhad already provided to then as liquidity assistance. Sixteen privatebanks chose not to participate in the program since, under the scheme,participating financial institutions would have to devote all their futureprofits to repurchasing this portfolio from the Central Bank, paying a 5Xreal interest rate on the outstanding amounts. In essence, thisarrangement is a loan from the Central Bank to the banKs' shareholders,precluding them from recelving any dividends or capital gains until thewhole loan Is repaid. The banks can, however, issUe new shares that woul.be exempt from this obligation and could receive dividends proportional totheir participation In the institutions' equity. lmplementation of thissolution has tailed, so far, to solve all of the portfolio problems ofparticipating banks. Risk assets (i.e., loans in arrears for more than 90days, accrued but uncollected interests, and goods received in payment as aresult of toreclosures, and considered insufficient to cover their relateddebts) still represent 34% of the non-intervened banks' equity capital.Nevertheless, the financial situation of the non-intervened banks isimproving since they are operating profitably and are building up reservesto cover potential losses that could arise from their risk assets.

2.08 Intervened banks (which account for 41% of the credit market)show an asset account called deterred losses" in their books (losses thathave already ti n recognized but have yet to be written off) equal to 932of their nominal equitv. In addition, they have substantial arrears andhave to repurchase the non-performing portfolio previously sold to theCentral Bank. The Government is devising a plan to -recapitalize- thesebanks in two stages: (a) it would convert into equity a portion of thecredit that the Central Bank has given them, in an amount sufficient to putthese banks on financlal terms equlvalent to those of the rest of thebanking system; and (b) It would then apply to them the scheme that wasused with the non-intervened banks. To implement this plan, a lawauthorizing the Government to buy newly is3ued equity in these banks hasbeen prepared; this law restricts Government holdings in any bank to amaximum of 49: of the shares outstanding at any given moment, and forcesthe Governmenit tc sell the shares to the public within five years after thepurchase. The implemnntation of this plan started in the first half of1985. Although it could take a long period for the Government to sell itsparticipation in these institutions, the intervened banks would berecapitalized- as soon as the Government purchases these shares and thebanks enter into the new portfolio repurchasing agreement with the CentralBank, in effect eniding the Government's intervention of the commercialbanks.

B. The lndustrial Sector

2.09 Since 1973, economic retorms have reduced the Government'sintervention in the economv, allowing the market to allocate economicresources. Of these reforms, the liberalization of the external sector --

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tariff reductions from a 97Z average level in 1973 to a uniform 10% in1979, ellminatic 9 of quota restrictions - affected the structure of theindustrial sector substantlally. The reduction cauced a shift in theallocatlon of resources, away from the production of import-mubstitutionmanufactures and into resource-based exports. A substantial portion of theimport-substituting industry disappeared *nd resource-based exporters, suchas pulp and paper, fishing, lumber and fresh fruits, grew at a very fastrate. Since the Chilean manufacturing sector had been largely orientedtoward the domeatic m_rkat and had grown inefficient behind a ultitude oftrade barrlers, the trade liberalizatLon resulted in a decline ln the shareof the sector in the country's GDP from 25Z in 1970-1973 to 202 in1981-1983. The share of manufacturing employment In the economy also fellfrom 172 In 1977 to 13% in 1983.

2.10 Since 1981, the drastic fall in domestic demand has depresseddomestically oriented mnufacturers, especlally those producing consumerdurables and intermediate construction goods. Given the nature of Chile'sbalance of payments problems , further measures to restrict domestic demandcould be necessary. Thls Is likely to have a negative effect upon chefuture growth of manufacturing. The more competitive exchange rate,however, has increased deuand for locally produced goods with high domesticvalue-added (e.g., textiles, clothing, furniture and metal products) andhas also lncreased the International competitiveness of Chilean lndustry.Several manufacturers who have so far produced only for the domestic marketare now able to compete internationally and are currently exploringpotential markets for their products.

t2.11 As a percent of value-added, credit to the manufacturlng sectordecreased, during the years of overvaluation, from 45.1Z to 40.4Z, but, asa result of the 1982 devaluation, It went up to 65.7% (Annex 3, Table 2).Although this figure is lower than the average for the private sector as awhole (77% of GDP), the burden of this debt Is proving excessive for somemanufacturing companies. As a result, principal and Interest on theseloans have been repeatedly rolled over by commercial banks during the lasttwo years. A large number of the country's productive companies areInvolved in these agreements and are caught In a viclous circle since thelrrepayment capacity depends upon thelr ability to grow, but they cannotexpand because they are too heavIly in debt to undertake the necessaryinvestments. The fallure to restructure these companies financlally whenit first becamo clear that they would not be able to fully service thelrdebts has significantly worsened their financial condition because accruedinterests have compounded thelr financial distress to the extent that manyof them, which were viable two years ago, now have lost their equitycapital many times over. Although the most seriously affected companiestend to be those producing for the domestic market, several exportingcompanies are also weak financially, and some of them are troubled by theownership problems resulting from the financial collapse of their holdingcompanies.

(i) Industrial Investment Requirements

2.12 The 1982-1985 devaluations have created opportunities forexporters and efficient import-substituting companies. which are currently

planning investments, to both increase their efficiency and expand theirproduction capacity. In total, fixed investment demand from non-miningindustrial companies can be estimated on the order of US$500 million for1985-1987, of which US$300 million would represent foreign exchangeexpenditures. The weak financial situation of Chilean industrial firms,however, is making it difficult for them to proceed with their investmentplans. Therefore, the materialization of industrial investment and growthcrucially depends upon the realization of a case-by-case financialrestructuring of industrial enterprises.

(ii) Industrial Restructuring

2.13 Although the industrial sector is recovering from the 1982-1983depression, its recovery remains precarious. The two major factorshindering recovery are: (a) the sector's debt burden; and (b) the legaluncertainties stemming from the financial collapse of lolding companies.The Central Bank has implemented two successive across-the-boardreschedulings during the last two years, both aimed at firms owing lessthan US$3 million equivalent. Firms with larger debts were supposed torenegotiate their debts directly with their creditors on a case-by-casebasis. The across-the-board programs for the smaller debtors, whileextending loan maturities and reducing interest rates, addressed short-termconstraints and, in effect, have probably delayed the long-run solution:the allocation of losses among creditors. The first round ofrenegotiations of the larger debtors is by now almost concluded. Many ofthese renegotiations, however, have resulted in unrealistic agreements thatleave debtor firms unable to meet their new contractual obligations andalso severely constrained in their growth potential.

2.14 Chilean banks could lower their long-run losses if they reducedthe financial burden now imposed upon borrowers through immediate loanwriteoffs (partial or total), conversions of debt into equity, or otherrelief schemes. Liberated from the excess burden, debtor firms could growfaster and repay a larger portion of their obligations than otherwise.Banks have not done this during the past two years, however, because of thefollowing main reasons: (a) a thorough financial restructuring of theprivate sector would have caused the banks' own bankruptcy; and (b)creditors and debtors have been expecting a Government bailout that wouldallow banks to reduce the financial burden of their debtors without causinglosses to the banks' shareholders. There is a growing perception, however,that the Government lacks the financial power required to bail out theentire private sector. These developments tend to favor the undertaking ofa case-by-case restructuring that could effectively liberate efficientfirms from their excessive debt burden and undo the financial deadlock thatis hindering the country's economic recovery.

2.15 To undertake a once-and-for-all restructuring, the banks may haveto: (a) reduce their claims on the firms' cash flows and (b) increase theirexposure to finance normalized operations and, when appropriate, theirexpansion. For the reduction of their claims on the firms' cash flows,banks may prefer to substitute equity or quasi-equity for debt instead ofwriting off loans. This will allow banks to participate in the futureprofits or cash generation of the restructured firms. The Superintendencia

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is allowing banks to take newly issued shares as repayment, but the BankingLaw requires them to dispose of shares within a maximum period of threeyears, even if they are non-voting stock. The Government is reluctant tochange this provision of the law because the current banking problems werecaused, to a large extent, by the interconnection between financial andnonfinancial firms; it therefore prefers the use of quasi-equityinstruments such as subordinated convertible deaentures, i.e., loans at low(or zero) interest rates that can be converted into equity shares by thecreditor, at a specified Price and within a given period, and whose paymentis contingent upon the availability of resources to first service woresenior debt.

2.16 The use of convertibles would allow the banks to wait for a muchlonger period for the firms to generate profits, and then to participate inthem through capital gains, if they can sell the debentures or shares atprices higher than those at which they acquired them. There are provisionsin the law limiting the amount that banks can invest in bonds as well asthe overall exposure that they can have in any single firm orconglomerate. The Superintendencia, however, is considering bonds receivedin payment and increases in exposure derived from restructurings asexceptions to these provisions. Furthermore, it has upgraded theclassification of the remaining debt of properly restructured firms.

2.17 Given the significant participation of foreign banks in thefinancing of Chile's private sector, the participation of these banks inthe restructuring process is essential. A case-by-case approach, linkingrepayments to the cash-generating capacity of each individual firm, wouldencourage such participation. Moreover, a precedent was established inSeptember 1984, when several foreign banks wrote off 80% (US$44 million) oftheir claims on an industrial company declared bankrupt, in exchange forrepayment, in cash, of the remaining 20%. After l-'Iis action was taken, thebankruptcy was lifted and the company is now operating normally. It islikely that international banks will have to go th-:ough similar operationsin the immediate future because no alternative solution appears to existfor a substantial portion of the country's industrial firms.

2.18 If it is restructured well, lending to a company previously infinancial distress could be an attractive business proposition because thecompany would represent a better risk. While international banks arereluctant to increase their exposure in Chile, Chilean banks have toincrease their operations in order to recover from their losses, and thereare not many good credit risks in Chile nowadays. A more serious problemis posed by the availability of resources to pass on to the restructuredfirms, which, at least initially, will have to be provided in part byequipment suppliers and by multilateral lending institutions, such as theBank and the Inter-American Development Bank (IDB).

C. Legal Issues

2.19 Chilean legislation provides an adequate framework forrestructurings to take place. The main instruments used in financialrestructurings (writeoffs, conversion of debt into equity or quasi-equity,

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subordinated loans, warrants and options, preferred shares of variouskinds) can be utilized legally in Chile. The absence, in Chilean law, ofprovisions similar to those in "Chapter 11" of the U.S. Bankruptcy Code(temporary protection from bankruptcy) has frequently been mentioned as ahindrance to potential workouts. It has also been suggested that itsinclusion would be the main improvement that can be introduced tofacilitate .ebt renegotiations. However, this is not a key issue because,under existing Chilean legislation, creditors and debtors can reachjudicial or extra-judicial agreements that substitute for temporaryprotection from bankruptcy. Moreover, even if companies are declaredbankrupt, they can continue their operations for up to 18 months("continuidad de giro") if certain conditions are met, and bankruptcy cansubsequently be lifted if creditors accept the conditions set by thereceiver to restructure the company (if not, the company is liquidatedimmediately). This mechanism can actually prove more effective thanprotection from bankruptcy to force realistic agreements because itpresents the choices quite clearly and demands more rapid decisions.

D. Bank Strategy in the Industrial Sector

2.20 The financial crisis of the industrial sector is one of the mainobstacles to Chile's future economic growth. The Government, aware thatprevious measures have been insufficient to remove it, has decided to takea case-by-case approach in assisting industrial firms to design and executefinancial restructurings conducive to investment and growth. Financialrestructuring of the private sector involves two tasks: (a) the reductionof the financial burden of productive companies to levels that could allowthem to invest and grow; and (b) the strengthening of the banking system towithstand the losses resulting from this reduction. The Government iscurrently implementing a program to -recapitalize the banking system andhas asked the Bank to concentrate its help in this project upon corporaterestructurings.

2.21 In designing the proposed project, the Bank agreed with theGovernment on the following strategy: (a) case-by-case restructurings wouldensure that scarce financial resources would be allocated to efficientfirms only; (b) all decisions concerning individual workouts would be takenby the parties directly involved (debtors, creditors, shareholders and,whea appropriate, receivers and baakruptcy judges); (c) the Governmentwould be a catalyst, facilitating and promoting individual workouts; and(d) the proposed project would set up a mechanism to facilitaterestructurings and then provide fresh resources to finance the normaloperation and expansion of restructured firms. No funds of the proposedloan would be used for refinancing of existing obligations.

2.22 Given the magnitude of the private sector debt, it is proposedto use the proceeds of the proposed loan for financial restructurings ofindustrial corporations (including mining aad agroindustry), although theproposed project's institutional framework could also be used to help inworkouts of firms in other sectors of the economy. To make restructurings

- 10 -

possible, the Government would agree to abstain from granting subsidizedcredit lines that could compete with the proceeds oa the proposed loan witheasier borrowing conditions. Since the costs Involved in the establishmentof this institutional framework make it suitable primarily for channelingrelatively large subloans, the proposed loan is expected to assist mainlymedium- and large-scale firms. Help to small-scale firms would bechanneled through a proposed Small Scale Industry Project, now underpreparation.

III. THE PROJECT

A. Project Objectives and Description

3.01 The proposed project would help the Government in the undertakingof financial restructurings of industrial corporations through:

(a) assistance in establishing and financing an institutionalframework through which corporate workouts could be devised,negotiated and implemented, and

(b) assistance in financing the purchase of the intermediate andcapital goods necessary to maintain and increase productionof restructured firms.

3.02 The benefits of the loan would be open to any efficient industrialcompany, including agroindustrial firms, which could earn or save foreignexchange. The proposed project would be considered a pilot project gearedto setting replicative examples of restructuring processes foreconomically viable, but financially troubled, firms, within a case-by-caseapproach, which could later be extended to other firms under similarconditions.

3.03 The Government of the Republic of Chile would be the borrower andCB the executing agency. CB would onlend the loan proceeds toparticipating commercial banks in accordance with Subsidiary LoanAgreements, satisfactory to the Bank (para. 3.20), entered into as acondition precedent to disbursements with respect to each commercial bank.At least two Commercial banks would participate in the financing of eachsubloan, and would assume the responsibility for carrying out therespective subproject to completion jointly and severally. No intervenedbanks would be eligible to participate in the loan. Subprojects to befinanced out of the proceeds of the proposed loan would be selected on thebasis of subloan requests, which, for companies in need of restructuring,would include a workout proposal (para. 3.13).

3.04 Excluding large copper mining projects, the aggregate investmentcost of industrial projects over the next 36 months (the proposed loancommitment period) is estimated to be on the order of US$500 million(para. 2.12), of which US$300 million would represent foreign exchangeexpenditures. Imports of current inputs for industry are estimated atUS$1.2 billion per year. Adding this figure to the foreign exchange neededto finance imports of capital goods for the industrial sector, total

- 11 -

foreign exchange needed amounts to US$4.2 billion for 1985-1987. Of thisamDunt, approximately US$800 million would be demanded by firms eligiblefor Bank financing, divided equally between fixed investment and permanentincreases of working capital (the rest corresponds to normal workingcapital imports, and to foreign exchange needs of large firms and projectstha-. exceed the scope of the proposed project). Given the pilot nature ofthis project, it is expected that investments amounting to US$300 millionwould be financed out of the proceeds of the loan. After taking intoaccount other probable sources (i.e., a proposed US$128 million IDB loanfor free-standing working capital and suppliers' credit), a Bank loan ofUS$100 million equivalent is proposed to help fill part of the sector'sestimated foreign exchange gap. It has been estimated that this amount isneeded to make a meaningful impact upon the industrial sector, as well asto justify the creation of a Technical Unit (TU, para. 3.12) to managefinancial restructuring loans, which could later be the key agent in thereplication and expansion of the restructuring process by the Government.

3.05 The proposed US$100 million loan would be allocated as follows:

(a) US$97.4 million for the credit component, which would coverthe foreign exchange costs of subloans made by commercialbanks for working capital or fixed investment purposes,including increases in, or rationalization of, productivecapacity of enterprises, and for technical assistancerequired to undertake those projects; and

(b) US$2.6 million to help finance the costs of the special unitcreated by CB to appraise workout proposals.

3.06 The proposed loan would have a 15-year maturity, including threeyears of grace. The Government would assume the foreign exchange riskbetween the currency pool obligations incurred under the Bank loan and thecurrency of CB's onlending to commercial banks (i.e., US dollars or Chileanpesos, para. 3.10). The loan would be repaid according to a standard fixedamortization schedule. CB would utilize the proceeds accrued from therepayment of principal and interests of subloans, which are not requiredfor the repayment of the loan, for paying the administrative expenses of TUand for making loans for the same purposes, and under similar terms andconditions, as the loan.

B. Credit Component

3.07 Subloans wor'd cover estimated foreign exchange costs of:(a) fixed assets (machinery, equipment, factory buildings and related civilworks and services); (b) permanent working capital (initial stocks orincreases in stocks of imported raw materials, spare parts and componentsrequired for increases in productive capacity or in the rate of utilizationof the existing capacity); and (c) technical assistance services requiredby industries. Not more than 50% of the loan would be used to financesubprojects requiring working capital financing in excess of 70% of thesubloan.

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3.08 Eligible firms should not have gover.mental participation(directly or indirectly) in excess of 50% of their equity capital, unlessspecific plans are submitted to decrease such participation to less than50% within a five-year period. Similarly, firms controlled by commercialbanks would not be eligible unless specific plans are submitted to reducethe banks' controlling ownership through sales to private enterpreneurswithin a three-year period. A firm would be eligible as beneficiary of theproposed loan only if the ownership of shares adding up to a controllinginterest in its capital is clearly and unquestionably defined. Also, firmswould be eligible only if it h-As been clearly established that they are notresponsible for obligations of third parties, including those of theirformer holding companies. No enterprise, including its subsidiaries, wouldbe eligible to obtain financing from the proposed loan in excess of US$15million equivalent, and not more than US$10 million equivalent would beallocated for working capital in any given subloan. Any subloan exceedingUS$10 million equivalent could be processed only after confirmation thatbest efforts have been made to arrange a cofinancing program undertakenwith IFC, other multilateral agencies and/or foreign commercial banks. Inthese cases, the subprojects would be reviewed with help from the Bank'sIndustry Department and/or IFC. These limits are intended to: (a) ensure areasonable degree of dispersion of loan funds while giving access to thesefunds to exporting firms with relatively large investment projects and(b) reduce concentration of credit in the largest enterprises.

C. Onlending Terms and Conditions

3.09 Within these limits, enterprises would have an option to borrowin either US dollars or Chilean pesos. Interest rates in both currencies,for both new and outstanding subsidiary loans and subloans, would be basedon the Bank's standard variable rate of interest. These rates would beadjusted semiannually in order to reflect the changes occurred in theBank's interest rate. No adjustment, however, would be made to thesubloans' outstanding amounts on account of the revaluations effected inthe dollar value of the Bank's currency pool (the exchange risk between theBank's pool and the US dollar would be assumed by the Government, para.3.06). Interest rates on dollar-denominated subsidiary loans would beequal to the Bank's interest rate plus a spread that would compensate CBfor the cost of the Bank's commitment fees (1/10%) and for the cost ofoperating a Technical Unit (TU) in charge of appraising subprojectproposals and their associated workout programs (1/2%, para. 3.11).Interest rates on dollar-denominated subloans would be calculated adding a3% spread (compounded) to the interest rates on subsidiary loans. Underpresent conditions, this would result in interest rates fordollar-denominated subsidiary loans and subloans of 9.95% and 13.2%,respectively. Interest rates on peso-denominated subsidiary loans andsubloans would be expressed in real terms, calculated upon a principaladjusted for local inflation in accordance with the Unidad de Fomento (UF),which reflects the daily changes in the country's Consumer Price Index(CPI). Real interest rates on peso-denominated subsidiary loans andsubloans would be calculated by deflating the respective dollar interestrates by the CPI in the United States. This would ensure that realinterest rates would be the same for dollar-denominated and

- 13 -

peso-denominated subsidiary loans and subloans; presently, rates for pesoloans would be about UF+4.7% ar,d UF+7.8Z, respectively, which are in linewith prevailing rates in Chile. The formulae to calculate interest ratesare contained in Annex 2 and in the Schedule of the Project Agreement. CBwould review the formulae semiannually for the determination and adjustmentof interest rates on subsidiary loans and subloans, exchange views with theBank on the results of such review and, if necessary, revise such formulaein a manner satisfactory to the Bank so as to ensure that the interestrates on subloans determined thereby are positive in real terms. TheGovernment would provide assurances that the basis for establishing theinterest rate charged on peso-denominated subloans reflects Chile's rate ofinflation.

3.10 Subloans for fixed investment and associated permanent workingcapital would have maximum maturities of 15 years, including grace periodsof up to three years. Subloans granted exclusively for permanent workingcapital financing would have maturities of 18 months to five years,including a grace period of up to one year. No subloan would mature afterthe loan's maturity date. Subloans financed out of the proceeds of theloan would rank pari passu with all other senior obligations of therestructured firms in terms of both debt service and repayment in case ofbankruptcy.

D. Institutional Setting

3.11 CB would, as executing agency, manage the funds of the proposedloan and would be responsible for all the associated administrative tasks.To appraise subloan requests, CB would create an entity (Technical Unit,TU) with a Board of Directors comprising representatives of CB, theMinistries of Finance and of the Economy, and of the Superintendencies ofBanks and of Corporations. The representative of CB would be the Presidentof TU to ensure a close coordination between it and CB. TU would bestaffed with high-level professionals and consultants as required (hired inaccordance with the Bank's guidelines for hiring consultants), under thedirection of a manager who would report to the President, who, in turn,would report to the Board. Subprojects approved by the Board would besubmitted to CB's management for final approval at the Government level.TU would not be tied exclusively to the proposed Bank loan, but would alsohelp to arrange other large workouts. CB would pay for the expenditures ofTU On behalf of the Government. A US$2,600,000 component has been includedto help finance TU's staffing expenditures. TU would initially be staffedwith four professionals, including the manager. One would be a lawyerspecializing in corporate law, and the rest would be economists or businessmanagement specialists with strong financial and corporate backgrounds. Inaddition to the permanent staff, TU would also hire temporary consultantsas needed in order to appraise proposed subprojects and their associatedworkouts. TU would be managed in accordance with a Statement of OperatingPolicies and Procedures satisfactory to the Bank. A draft of thisStatement appears as Annex 2 to this report. The full staffing of TU wouldbe a condition for effectiveness of the loan.

- 14 -

E. Subproject Appraisal and Supervision

3.12 Workout proposals for companies seeking Bank financing would bearranged by the companies themselves (or by consultants hired by them).Participating commercial banks would assume the commercial risk of subloansfinanced out of the proceeds of the proposed loan, and, therefore, wouldhave to undertake a thorough appraisal of the proposed subprojects and anyrestructuring arrangements involved. TU would also carry out a detailedanalysis of each workout proposal to ensure that: (a) the firm wouldbecome economically and financially viable as a result of the proposedworkout on the basis of reasonable assumptions regarding its futureperformance; (b) the proposed restructuring, if carried out, would belegally binding and no further claims could be leveled .against the firm inconnection with its liabilities at the time of the restricturing(para. 3.15); (c) the ownership of the beneficiary firm's controllinginterest is incontestably defined; (d) the proceeds of the subloan wouldnot be used to repay other obligations existing at the time of therestructuring; and (e) the proposed operation is in accordance with theLoan Agreement and TU's Statement of Operating Policies and Procedures.Upon CB's approval, the first two subloans requiring Bank financing and,subsequently, all those requiring Bank funds in excess of USS5.0 millionequivalent (free-limit), would be submitted to the Bank for finalapproval. Subprojects requiring subloans in excess of US$10.0 millionwould be reviewed with help from the Bank's Industry Department and/or IFC(para. 3.08).

3.13 The workout proposals would be based upon a 'workout strategy"that would include: (a) a marketing plan, aimed at increasing the firm'srevenues, through emphasis upon the more profitable products and customers,product redesign, quality and packaging improvements, geographic coverage,etc; (b) a production plan, devised to fill the needs resulting from themarketing plan, and which could include measures ranging from curtailmentof productive capacity to a fuller utilization or expansion of existingcapacity; and (c) a financial workout plan, devised to implement thepreceding marketing and production plans. The financial plan wouldtypically include: (a) streamlining of management and administration;(b) the sale of unnecessary assets; (c) a reduction in the firm'sfinancial burden, accomplished through the use of any of the instrumentssuitable for restructuring, or a combination of several of them; (d) othermeasures to improve the firm's financial situation (extended maturities,for instance); (e) an issue of new shares to mobilize fresh capital,whenever possible; (f) a request for a subloan that could include financingfor free-standing permanent working capital, fixed investment, or acombination of both; and (g) financial projections showing the expectedresults of all these planned measures.

3.14 Appraisals of all subprojects and their related workoutstrategies" would include a calculation of the subprojects' Financial Rateof Return (FRR) and Economic Rate of Return (ERR), and the subprojectswould be financed only if such rates exceed 11% in real terms. The ERRwould be estimated using border prices. To determine if a restructuringpackage is viable, TU would ensure that, on the basis of reasonable

- 15 -

assumptions, the proposed "workout strategy" would enable the company toadequately service Its debt while mantaining a sufficient level ofliquidity. Criteria to carry out this evaluation have been Included inTU's draft Statement of Operating Policies and Procedures (Annex 2).Particular attention would also be given to the following additional items:(a) if the company is planning to borrow in foreign currency, it shouldhave a corresponding source of hard-currency-denominated revenues whichshould be enough to repay the obligation (even if, in the long run, thecost of indexed peso-denominated loans would tend to be equivalent to thecost of dollar-denominated loans, short-term fluctuations could be severeenough to cause the demise of a borrower); and (b) when required, a sinkingfund of appropriate size should be gradually built up to anticipate thecontingency of holders of convertible debentures choosing not to convert atmaturity.

3.15 To confirm that the beneficiary firms' controlling interestwas clearly established, and that the proposed refinancing scheme waslegally binding and enforceable, TU would request, as part of a subloanapproval process, an independent legal opinion confirming the legality ofthe proposed arrangements. Covenants limiting the incurrence of futureloans would be included in subloan agreements.

3.16 Each commercial bank would regularly supervise the subprojectsfinanced by it to see that subloans are utilized for the purposes intendedand that the financial and other conditions affecting subprojectperformance are progressing satisfactorily. Each bank would send a copy ofits periodic supervision report to TU, which would review it and would havethe right to obtain clarifications from either the beneficiary firm or thecorresponding commercial bank. Additionally, TU and commercial banks wouldhave the right to visit the beneficiary enterprises as necessary and toreceive from them the relevant information on the firm and the subproject.TU would be responsible for supervising the performance of participatingcommercial banks and their compliance with the conditions agreed in theproposed loan. To this end, TU would make periodic visits to commercialbanks and would receive quarterly reports from them on the performance ofthe portfolio financed out of the loan proceeds. These understandingswould not be modified without the Bank's consent.

F. Procurement and Disbursement

3.17 Procurement procedures would conform with standard practice forIDF loans; TU would monitor procurement to be financed out of the proposedloan in order to ensure that the items are reasonably priced andappropriate for their intended purpose. Subloans would finance up to 60%of the total cost of approved subprojects, and the loan proceeds would bedisbursed against 100% of the amount of the subloans. This percentagereflects estimated average foreign exchange costs of the respectiveexpenditure categories. Also, the loan proceeds would be disbursed against100% of the costs involved in hiring consultants for TU, up to the amountallocated for this purpose (para. 3.05). Terms of reference forconsultants hired to provide technical assistance in the implementation ofsubprojects/workouts would have to be acceptable to TU, and the procedures

- 16 -

used for hiring such consultants would be consistent with the Bank'sstandard guidelines. Only expenditures made within not more than 180 daysprior to the date of the receipt, by the Bank, of the correspondingfinancing requests would be eligible for disbursement out of the proposedloan--rather than the 90 days customary under the Bank's IDP loans--in viewof the administrative complexities and the time lags involved in a two-tier operation with many participating financial intermediaries. Annex 1provides an estimated disbursement schedule, which is based on the averagedisbursement profile for DFC operations in the LAC region and adjusted forslower disbursement rates in order to allow for delays in restructuringarrangements. The closing date would be December 31, 1991. To cover theforeign exchange requirements of participating commercial banks forinvestments that they would be financing after the proposed loan had beenapproved by the Executive Directors, but before it became effective,retroactive financing of up to US$10 million, 10% of the loan amount, hasbeen provided.

3.18 In order to ensure timely payment of reimbursement claims, as acondition of loan effectiveness, a Special Account in US dollars would beestablished in CB to cover estimated expenditures for four months. TheBank would make an initial deposit of US$10.0 million into the SpecialAccount. CB would claim reimbursement of the Bank's share of expendituresfrom the Special Account upon presentation of fully documented withdrawalapplications forwarded to the Bank for replenishment of the SpecialAccount. The Bank would receive from CB a monthly statement of the SpecialAccount which would reflect transactions during the previous month. TheSpecial Account would be subject to the same audit procedures as the otherproject accounts.

G. Accounts and Auditing

3.19 Beneficiary firms would be required to appoint exteroal auditorsacceptable to TU. Commercial banks participating in the proposed projectwould be required to maintain adequate records, reflecting their operationsfinanced out of the proposed loan, and to submit annual statements ofaccount, audited by independent auditors following principles satisfactoryto TU. CB would maintain adequate records concerning the progress of theproject and reflecting, separately from its other operations, theoperations and financial transactions related to the proposed loan. Theseaccounts would be audited by independent auditors following principlessatisfactory to the Bank.

H. Participating Intermediaries

3.20 No intervened banks would be allowed to participate in theproposed project as long as they remain intervened. AU other comercialbanks would be eligible to participate, provided they sign a SubsidiaryLoan Agreement in terms satisfactory to the Bank. The signature ofSubsidiary Loan Agreements with at least two participating banks would becondition of effectiveness of the loan (para. 3.03).

- 17 -

I. Benefits and Risks

3.21 The proposed project would help to remove the financial deadlockthat is hindering the recovery of industrial production in Chile through:(a) establishing an institutional framework geared to promote financialrestructurings in all sectors in the economy and (b) providing foreignexchange financing needed for the restructuring of a number of industrialcompanies. In this process, the project would contribute to establishingreplicative examples that could be extended to other economically viable,but financially troubled, firms in other sectors of the economy. Theproject would also help in closing the foreign exchange gap that couldprevent the country's economic growth. A total of 20-30 industrial firmsare expected to benefit directly from the project. On the risk side,commitments could fall short of expectations if: (a) as a result of copperprices remaining low, or international interest rates high, for a long timeto come, the country's economic situation deteriorates significantly,causing a contraction in investment credit demand; (b) TU fails inpromoting restructurings or proves incapable of analyzing them properly;(c) individual restructurings prove too difficult to be completed withinthe proposed loan's commitment period; and (d) once restructured, currentlytroubled companies obtain credit from other Ieders (inbthi casproject would be successful, but the loan would not disbutse). aivelvWtheprecarious condition of the Chilean economy, and the oncertaintiesassociated with restructuring, the risks of the project are significant.However, the benefits to Chile could be substantial, and the experiencegained in this operation would be useful in the design of programs tosupport firms in financial distress. Therefore, the overall benefits ofthe project are expected to outweigh the risks significantly.

IV. AGREEMENTS REACHED AND RECOMMENDATION

4.01 During loan negotiations, final agreement was reached with theChilean Government and CB on:

(a) the loan amount and components (paras. 3.04 and 3.05); and

(b) arrangements for channeling the resources (paras. 3 03 and 3.11),repayment of the Bank loan, (pars. 3.06);

(c) project's objectives (para. 3.01), terms and limits of financing,(paras. 3.09 and 3.10), eligible enterprises and draft operatingpolicies and regulations (operating guidelines) (paras. 3.02 and3.11), eligible expenditures for financing and procurement anddisbursement procedures (paras 3.17 and 3.18);

(d) onlending interest rates and spreads (para. 3.09); and

(e) institutional arrangement for implementing the project(para. 3.11); and

(f) accounting and auditing arrangements (para. 3.19)

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4.02 Special Conditions

The Government would provide assurances that:

(a) Firm agreement has been reached between the Government and itsinternational creditors on a financial package consistent withclosing the country's estimated balance of payments gap in 1985;

(b) the Government would not make available subsidized lines ofcredit for financial restructuring with terms and conditions thatcould undermine the proposed loan (para. 2.22);

(c) the Technical Unit would be nmnaged in accordance with aStatement of Operating Policies and Procedures satisfactory tothe Bank (para. 3.11)

(d) not more than $50 million of the loan would be used to financesub-projects with a working capital requirement exceeding 70percent of total estimated cost (para. 3.07);

(e) eligible firms will not have governmental participation in excessof 50 percent (para. 3.08);

(f) on-lending arrangements between the Central Bank and eachparticipating institution would be covered by subsidiary loanagreements containing terms and conditions satisfactory to theBank (para. 3.03);and the Government would assume thecross-currency risk (para. 3.06);

Cg) interest rates would be reviewed by the Borrower and the Bankevery six mDnths for purposes of maintaining interest ratespositive in real term, and responding to market conditions(para. 3.09);

(h) the basis for establishing the interest rate charged onpeso-denominated subloans reflects Chile's rate of inflation(para. 3.09); and

(i) a Special Account of US$10 million would be established to insuretimely payment of reimbursement claims (para. 3.18).

4.03 If approved, the Loan would become effective after:

(a) the Government has designated CB as its fiscal agent;

(b) the Government shall have secured external financing sufficientto cover the foreign exchange required to close the borrower'sbalance-of-payments accounts for its fiscal year 1985;

(c) TU's staffing has been completed (para. 3.11);

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(d) it least two subsidiary Loan Agreements have been signed with twoparticipating banks (pars. 3.20).

4.04 Subject to tha above, the proposed project would be eligible fora Bank loan of USS100 million equivalent, with a term of 15 years,including a grace period of three years.

May 20, 1985

- 20- AME= 1Page 1 of 1

DLAL FDWAN WIUEDG FW

EsI=ted Sdu&ule of Isb t */

IED Flgcial Year and letimted Di _buzunts Quuatla1qarter ending 1Dur the Qtnrter Fad of Qupr

FY 1986Septeber 30, 1985Irornder 31, 1985 299.2 299.2March 31, 1986 720.0 1,019.2June 30, 1986 720.0 1,739.2

FY 1987Sepcer1er 30, 1986 2,118L3 3,857.5DeImber 31, 1986 2,118.3 5,975.8Mbrch 31, 1987 2,966.5 8,942.3Jume 30, 1987 2,966.5 11,908L8

FY 1988September 30, 1987 5,158.8 17,067.6I^^-her 31, 1987 5,158.8 22,226.4Mardh 31, 1988 4,563.6 26,790.0June 30, 198B b/ 4,563.6 31,353.6

FY 1989Sepoeibcr 30, 1988 7,499.5 38,853.1DeceIber 31, 1988 7,499.5 46,352.6March 31, 1989 7,654.5 54,007.1June 30, 1999 7,6C..5 61,661.6

FY 1990September 30, 1989 6,874.6 68,536.23ecembrr 31, 1989 6,F,74.6 75,410.8March 31, 1990 2,142.7 77,553.5June 30, 199D 2,142.7 79,696.2

Fl 1991Se tr 30, 1990 5,234.7 84,9W09Doember 31, 1990 5,234.7 90,165.6Murch 31, 1991 2,635.7 92,801.3Junm 30, 1991 2,635.7 95,437.0

FY 1992Stecr ber 30, 1991 2,281.5 97,718.5Iaombeur 31, 1991 cl 2,281.5 100,000.0

a/ Based co the auzer dLsbu4reet profiles cf IGF projects In theAC reginm, adjuitsl for slower disbxu -- t race, gimn the Unaou d the poject.

b/ FEtidtedend date for subaiasion of subloms.

cl tod date.

- 21 -ANNEX 2Page 1 of 8

STAFF APPRAISAL REPORT

CHILE

INDUSTRIAL FINANCE RESTRUCTURING PROJECT

Central Bank of Chile. - Technical Unit of Financial Restructuring

Statement of Operating Policies and Procedures

This Statement lays down the policies and procedures that theCentral Bank of Chile (CB), as executing agency, will carry out through theTechnical Unit of Financial Restructuring tAU) in discharging itsresponsibilities under the proposed Financial Restructuring Project (theProject) and its associated Loan (the Loan) of the World Bank (the Bank).

I. Organization

(a) TU will consist of two main bodies: the Board of Directorsand the Secretariat. The Secretariat will review proposed investmentprojects in order to ensure that they are eligible for financing out of theproceeds of the Loan. Based upon this review, the Secretariat willrecommend to the Board of Directors their approval or rejection.Subprojects approved by the Board will be submitted to CB's management forfinal approval at the Government's level. CB will decide on approving orrejecting investment proposals using the Project's criteria exclusively.Upon CB's approval, the first two subloans requiring Bank financing, and,subsequently, all those requiring Bank funds in excess of US$5.0 millionequivalent (free limit), will be submitted to the Bank for final approval.

(b) The Board of Directors will consist of five uembers, onerepresentative each of CB, the Ministries of Finance and of the Economy,and the Superintendencies of Banks and Corporations. CB's representativewill be the Chairman of the Board and will be responsible for thecoordination between TU and CB's units in charge of managing the proceedsof the Loan and of keeping the records of transactions carried out underthe Project.

(c) The Secretariat will consist of a Secretary General and anumber of professionals, some of whom will be working full time on theProject while others will be hired temporarily for specific tasks. TheSecretary General will manage TU and will report to the Chairman of TU'sBoard of Directors. In addition to the Secretary General, at least threeprofessionals will work full time in TU: one lawyer and two financialexperts. Instead of hiring a full-time lawyer, however, TU could hire alegal firm that would assign to TU man-hours equivalent to a full-timelawyer. This arrangement would provide the flexibility required to handleall the different legal aspects of restructurings, which could exceed theexpertise of any individual lawyer.

(d) TU will take all the steps necessary to ensure that itsstaffing remains both capable and sufficient in numbers to discharge theresponsibilities associated with the Loan. Both its managerial andtechnical staff, including consultants, will be hired in accordance withthe Bank's guidelines for hiring consultants.

- 22 -ANNEX 2Page 2 of 8

II. Utilization of Funds

(a) The Loan's funds will be managed by CB, which will disbursethem at the request of TU.

(b) The proceeds of the Loan shall be used, in accordance withthe terms of the Project and Loan Agreements, to finance the procurement ofcapital and intermediate goods, raw materials and services needed for thenormal operation, or expansion, of privately controlled industrial firmsthat are currently in financial distress and which undergo a financialrestructuring that transforms them into fully viable enterprises.

(c) The economic activities that may receive financing shallinclude manufacturing industry, mining and agroindustry.

(d) The proceeds of the Loan will be used to finance onlyspecific projects that are technically, legally, financially andeconomically sound. Financing out of the proceeds of the Loan will beprovided only for the purposes, and to cover the types of expenditures,stated in the Loan Agreement.

III. Subloans Terms and Conditions

(a) Subloans will finance fixed investments (includinginvestments carried out in order to imprcve the beneficiaries' technicalcapabilities) and permanent working capital. Subloan components financingpermanent working capital not directly associated with fixed investmentswill have maturities ranging between Id months and five years, includinggrace periods of up to one year. Subloan components financing fixedInvestment, and the permanent working capital directly associated withthese investments, will have maturities not exceeding 15 years, includingup to three years of grace. No subloan, however, will mature after theLoan's maturity date.

(b) Subloans will be denominated in either US dollars or Chileanpesos, depending upon the preferences of beneficiaries. Each subloan willbe intermediated by at least two commercia'l banks, which will make acommitment to carry out the investment project to its completion jointlyand severally.

(c) Interest rates in both currencies, for both new andoutstanding subloans, will be adjusted every six months (on January 1st andJuly lst) in order to reflect the changes occurred in the World Bank'sinterest rate expressed in dollar terms. No adjustment, however, will bemade to the subloans' outstanding balances on account of the revaluationseff cted in the dollar value of the World Bank's currency pool. The newinterest rates will be applied for the next six months.

(d) Interest on the principal amount of dollar-denominatedSubsidiary loans and subloans will be payable at a rate adjustedsemiannually, on each January 1 and July 1, according to the followingformula:

r$ = [(1+B)(1.001)(1.005)] - 13 x 100

i$= {t(l (1.03)1 - 1 x 100,}

100

- 23 -ANNEX 2Page of 8

where:

r$ - the rate at which CB will onlend the proceeds of theloan to participating commercial banks in dollar terms.

B - the Bank's interest rate prevailing on the date thesubsidiary loan was made or, for the purpose of thesemiannual adjustments, on the date of such adjustment.

i$ - the rate at which commercial banks will onlend tobeneficiary firms in dollar terms.

(1.001) = the estimated cost of the Bank's commitment fees.

(1.005) = the estimated cost of operating TU.

(1.03) = the spread to commercial banks.

(e) Interest rates on peso-denominated subsidiary loans andsubloans will be expressed in real terms, calculated upon a principaladjusted for local inflation in accordance with the Unidad de Fomento (UF),which reflects the daily changes in the country's Consumer Price Index.Real interest on peso-denominated subsidiary loans and subloans will bepayable at a rate adjusted semiannually, on each January 1 and July 1,according to the following formula:

rch = { [(1+s /(1+ CPI)] - 1 1 x 100ich = t - 1 x 100

100where:

rch = the real rate at which CB will onlend the proceeds ofthe loan to participating commercial banks in pesoterms.

r$ - the rate at which CB will onlend to participatingcommercial banks in dollar terms.

i CPI - the annual rate of change in the US's Consumer PriceIndex, calculated between April and September for theJanuary 1 adjustment, and between October and Marchfor the July 1 adjustment.

ich = the real rate at which commercial banks will onlendto beneficiary firms in peso terms.

iS - the rate at which commercial banks will onlend tobeneficiary firms in dollar terms.

(f) -CB shall review semiannually the formulae for thedetermination and adjustment of interest rates on subsidiary loans andsubloans, exchange views with the Bank on the results of such review and,if necessary, revise such formulae in a manner satisfactory to the Bank so

- 24 -ANNEX 2Page 4 of 8

as to ensure that the interest rates on subloans determined thereby arepositive in real terms.

IV. Subproject Appraisal and Supervision

(a) TU will specialize in corporate workouts. For the purposesof the Loan, it will review the proposals of restructuring presented bypotential beneficiaries in order to approve or disapprove requests offinancing. Subloan requests should include a "workout proposal' and itsassociated investment project. The workout proposals would be based upcm a"workout strategy" that would include: (a) a marketing plan, aimed atincreasing the firm's revenues, through emphasis upon the more profitableproducts and customers, product redesign, quality and packagingimprovements, geographic coverage, etc; (b) a production plan, devised tofill the needs resulting from the marketing plan, and which could includemeasures ranging from curtailment of productive capacity ti a fullerutilization or expansion of existing capacity; and (c) a finanLial workoutplan, devised to implement the preceding marketing and producticn plans.The financial plan would typically include: (a) streamlining of managementand administration; (b) the sale of unnecessary assets; (c) a reduction inthe firm's financial burden, accomplished through the use of any of theinstruments suitable for restructuring, or a combination of several ofthem; (d) other measures to improve the firm's financial situation(extended maturities, for instance); (e) an issue of new shares to mobilizefresh capital, whenever possible; (f) a request for a subloan that couldinclude financing for free-standing permanent working capital, fixedinvestment, or a combination of both; and (g) financial projections showingthe expected results of all these planned measures. Subloan requestsshould also include an independent legal opinion, on terms satisfactory toTU, stating that the proposed workout is legally viable, that no furtherclaims can be leveled against the firm in connection with its liabilitiesat the moment of restructuring, and that the ownership of the company'scontrolling interest is clearly defined (or that it will be so as a resultof the workout).

(b) In reviewing subloan requests, Tm will obtain from theapplicant firms a complete disclosure of all the information relevant forthe appraisal of the subproject, including information about the identityand history of the company's owners. To proceed with the appraisal of anapplication, audited financial statements, certified by external auditorssatisfactory to TU, will be requested, and beneficiary firms will becontractually obliged to appoint external auditors satisfactory to TU.

(c) In appraising a subproject, TU will pay special attention toensure that:

Ci) The owners are bona-fide enterpreneurs, committed tothe success of the enterprise. If the firm's ownership is controlled bycommercial banks, the workout proposal must provide for the transfer ofsuch controlling ownership to private enterpreneurs within a three-yearperiod. Eligible firms should not have Governmental ownership (directly orindirectly) in excess of 50Z of their equity capital, unless specific plansare submitted to decrease such participation to less than 50X within afive-year period.

- 25 -ANNEX 2Page 5 of 8

(ii) The managerial abilities of the firm's executives aresufficient to undertake the tasks required by the plans included in the"workout strategy."

(iii) The administration and organizational setup of the firmare adequate to carry out the proposed 'workout strategy," and salaries andwages are reasonable.

(iv) The company has either already sold, or is planning todivest itself of, all assets not necessary for its industrial activitiesas spelled out in the corresponding "workout strategy.

(v) The company does not have obligations, binding orcontingent, derived from debts of another enterprise, unless this othercompany is a subsidiary and is included in the workout.

(vi) No funds financed with the Loan will be used forrepayment of existing obligations of the firm.

(vii) All expenditures financed with the proceeds of the Loanare eligible in accordance with the Loan Agreement.

(viii) The subloan financed out of the Loan will rankpari passu with other senior debts of the beneficiaries.

(ix) The firm's Financial Rate of Return (FRR) and EconomicRate of Return (ERR) both are equal to, or exceed, 11% in real terms, aftertaking into account the proposed investment subproject. The ERR will beestimated =sing bordc= prices.

Cx) The projected debt-service-ratio (cash generationdivided by financial charges plus principal repayments) is no less than 1.0in each and every year of the life of the project, and averages not lessthan 1.2 during that period.

(xi) The projected current ratio (current assets divided byshort-term liabilities) is not lower, at any time, than 1.2, unless theBank agrees otherwise.

(xii) The initial long-term-debt-to-equity ratio does notexceed 1.2.

(xiii) If the company is planning to borrow in foreignexchange, it has a source of hard currency that allows it to service andrepay the debt.

(xiv) Cash-flow and other financial projections have beenelaborated taking into account the mandatory dividends established byArticle 79 of Law 18046 (Ley Sobre Sociedades Anonimas).

(xv) The company has considered in its financial plans thecontingent liabilities that could arise from the restructuring process. Inparticular, if subordinated convertible instruments were used to

- 26 -

ANNEX 2Page 6 of 8

restructure the firm's debt, a sinking fund should be established in orderto cover the cash outlays that would take place if the holders of theseinstruments decided not to convert at maturity.

(xvi) For the purposes of estimating the current andlong-term-debt-to-equity ratios, the term 'debt' will include alloutstanding and contingent liabilities of the company with respect topersons or entities other than its shareholders, excepting only those thatare subordinated in both service and repayment of principal. The term"subordinated- will be used to identify those debts that are senior onlywith respect to the claims of the shareholders. A debt will be"subordinated in the service of debts- when it is serviced only after allnormal debts have been serviced, and then, only if the liquidity of thefirm is enough to service it while keeping it within the limits agreed onin the Subloan Agreement (item xi). A debt will be "subordinited inrepayment of principal" when, in case of failure of the company, repaymentof its principal is effected only after all normal debts have been fullyrepaid. The term -capital' will include all net claims of th3 firm'sshareholders, plus those of the holders of subordinated debts.

(d) TU will also make sure that the Subloan Agreements are inaccordance with the provisions of the Loan and Project Agreements.

V. Conditions of Disbursement

(a) All relevant agreements should have been entered into andbe binding, including, inter alia, existing debt restructuring agreements,loan agreements for new debt included in the "workout strategy,-shareholders agreements whereby shareholders agree to offer the necessarypre-emptive rights needed to implement possible conversions, warrants, newequity issuance, etc., as well as possible security agreements,shareholders undertakings regarding actual or contingent comnitments toprovide financial support.

(b) Disbursements of the subloans should be made pari passu withother disbursements forthcoming under the workout implementation.

(c) For each disbursement to take place, but after taking intoaccount such disbursement, the current ratio should be equal to or higherthan L.2, and the long-ter-to-equity ratio should be equal to or lowerthan 1.2.

(d) All other disbursement conditions established in the SubloanAgreement should have been complied with.

VI. General Subloan Conditions

(a) Beneficiaries will present to TU quarterly financialstatements and annual audited financial statements.

(b) All transactions effected by the beneficiary with anyindividual or company related to it through ownership should be at arm'slength.

- 27 -ANNEX 2Page 7 of 8

(c) All or any revenue-sharing arrangements entered into by thebeneficiary should be subordinated to payments to senior creditors.

(d) Liens and mortgages will be shared proportionately with thesubloan to ensure that it ranks pari passu with other senior debt.

(e) The beneficiary will not declare nor pay dividends in excessof the minimum established by Article 79 of Law 18046 until theinvestment/divestiture programs contained in the 'workout strategy" havebeen carried out, and then only if, after taking into account suchdividends, the current ratio is equal to or higher than 1.2, the long-term-debt-to-equity ratio is equal to or lower than 1.2 and reserves have beenset aside to cover the full redemption of outstanding convertibleinstruments. Such dividends should be paid only out of current profits.

(f) Limits will be imposed upon investments and indebtedness notincluded in the "workout strategy," and upon the incurrence of short-termdebt in absolute amounts and to maintain a current ratio not lower than1.2.

(g) No prepayments of long-term debt will be effected unlessproportionate payment is also made to the subloan.

(h) Except in the ordinary course of business, the beneficiarywill not provide loans, advances or deposits to subsidiaries or otherentities whose ownership is in any way connected to it.

(i) No change in the beneficiary's by-laws ("Estatutos") will beeffected except with TU's approval.

ij) If the beneficiary controls other enterprises, all theseprovisions are to be applied mutatis-mutandis to the consolidated financialstatements.

(k) All other conditions contained in the Loan and ProjectAgreements.

VII. Supervision

TU will be responsible for supervising the disbursements ofsubloans, ensuring that transactions between banks and beneficiaries withrespect to the Loan are conducted in an arm's-length fashion. To tbis end,TU will review the documentation submitted for disbursement and will payperiodic visits to the beneficiary's facilities to confirm that the-workout strategy" is being implemented in accordance with the SubloanAgreement. During the period of disbursement, these visits will berealized quarterly, and, after disbursement, once every year. TU willcarry out at least one major formal review of each subproject per year, andwill send a copy of its results to the Bank. Participating commercialbanks will be required to maintain adequate records reflecting theiroperations financed out of the proceeds of the Loan, and to submitquarterly reports on the performance of the portfolio financed out of theLoan. Banks will also present annual audited statements of account withrespect to the Loan's funds.

- 28 -ANNEX 2Page 8 of 8

VIII. Procurement

TU will monitor closely the procurement of items to be financedunder the Loan, in order to make sure that the items are reasonably pricedand appropriate for their intended use. Particularly, TU will ensure thatcommercial banks require quotations from at least three qualified suppliersfor pieces of equipment or single procurement packages worth US$250,000equivalent or more. Expenditures carried out to improve the beneficiaryfirm technologically will be eligible for financing out of the proceeds ofthe Loan. Only the following types of expenditures, or such otherexpenditures as may be agreed by the Bank, would be eligible for financingas technology improvement expenditures:

(i) Research and development programs, carried out toinitiate or increase exports, or to improve production techniques, sub-contracted to national or foreign technical research institutes orequivalent agencies, or carried out in cooperation with overseasagencies.

(ii) Training of Chilean technicians abroad in internationalmarketing or production techniques, for periods of up to one year, when notincluded as part of a normal licensing arrangement.

(iii) Hiring of foreign technicians or consultants to workwith a company for up to one year.

(iv) Establishment of a laboratory and/or purchase ofecuipment, laboratory supplies and instruments for quality control,r-terials te.ting or product research.

Cv) Lump sum payments to purchase outright, and withoutrestrictions, the rights to utilize a new or modified production process orto produce some new product patented by a foreign concern.

IX. Amendments and Clarifications

Amendments to this policy statement may be made upon agreementbetween CB and the Bank. In addition, the procedures to be used by CB orTU in dealing with any subloans or investments of a type not previouslysubject to agreements between the Bank and CB would be clarified through anexchange of letters.

In case of conflict between this Statement and the Loan or theProject Agreements, the provisions of the Loan Agreement and the ProjectAgreement should prevail.

- 29 -

STAFF APPRAISAL REPORT T-1

Table 1: Finaicl Indicators of the Cbim Baldxg Systn

C:.Kdit AdjustI Risk Risk Portf. RlskMarket Equity/ Assets/ Aesets/ Sold/ Assets +Share IbN1mU Port- Adjusted Adjusted Sold Prt/

Equity Folio EquLty Equity AdjustedEquity

Intervened Barks 40.8 0.07 0.18 30.03 21.89 51.92

De Chile 22.1 0.04 0.12 54.76 39.06 93.83Sant 10.8 0.07 0.32 40.53 29.63 70.16Cwx~epcLoci 4.7 -0.09 0.21 -28.53 -17.75 -46.24Colocadora 2.0 0.65 0.14 2.65 2.57 5.22Intternmcional 1.2 0.39 0.05 1.15 2.39 3.54

Category B Private 35.1 0.91 0.06 0.77 2.36 3.13

Credito 6.1 0.80 0.05 0b2 3.18 4.00SudAmhericLa 4.9 1.00 0.09 1.22 2.52 3.74Trabajo 3.8 1.00 0.07 0.97 1.89 2.87-51F 3.5 1.00 0.05 0.89 2.49 3.38A. Edards 3.2 1.00 0.07 1.01 2.46 3A8D. H±ixm 3.0 1.00 0.6 0.58 2.16 2.74Espanol-Chle 2.1 0.97 0.04 0.34 2.66 3.00Osoirm 2.0 1.00 0.10 0.75 2.57 3.32Nacional. 1.9 0.96 0.08 0.74 2.33 3.06MorKg Flnarisa 1.3 1.00 0.06 0.66 1.43 2.10Cooinental 1.1 0.04 0.05 12.64 0.00 12.64Pad.fif 0.8 0.83 0.02 0.27 3.05 3.32IDmniLoU 0.6 0.51 0.05 0.66 4.65 5.31

0.3 1.00 0.03 0.25 0.00 O02lrquico 0.3 1.00 0.01 0.03 0.00 0.03Sudm.ra 0.2 0.93 0.08 022 1.34 1.56

Categry A Private 8.0 0.98 0.03 0.19 0.00 0.19

Del Estado 16.0 1.00 -0.03 -0.16 0.00 -0.16

Note - Adjusted Equity - N1ul equity - defiered wrlte-ofs.

Rk assets - PNcxwperfo1rg ssets + Interet accual but -y efe±velypercived + gDOds xersed in py eo: as a resuJ of fimer-re - pzavsiog)

Sold Portfoio assets slDd to Q.

CateDy A of ba*s izc1xJs 16 iiwtitotiom tha did ox sel portfolio to CIS

STAFF APPRAISAL REPORT

a=Lg

INDUSTRIAL FINANCE RESTRUCTURING PROJECT

Table2:: Allocation of the Financial System's Total Credit

A. Percent crqoultlon

Agriculture, Transport,Ivestoc k, Sub-total warhouslng, Sub-Total 1f-

fishing mlnIng Manufacture 7radeables Construction Co_nrwo Cam. Utilities Services Mon-tradebles Speciflod I/ Total1979 13.9 1.2 30.4 45.5 5.0 22.8 3.2 .1 12.3 43.4 11.0 . 0O.01980 12.4 1 *7 21.6 35.7 8.1 21.5 3.7 .2 17.0 50.5 1 3. 100.0198I 10.6 1.7 16.8 29.1 11.1 18.5 2.7 .3 20.4 53.0 18.0 I-00 11982 11.0 2.3 16.6 29.9 10.8 15.5 2.5 .6 27.8 57.2 12.9 100.0 o1983 12.2 2.1 16.5 30.8 10.8 16.6 3.0 .9 28.7 S9.2 9.9 100-0(Sept} *

B. As percent of value added.

1979 60.3 4.0 45.1 37.5 36.5 43.0 19.5 - 12.2 22.7 - 33.71980 78.1 8.9 45.8 43-6 71.0 59.8 34.4 - 22.9 36.8 - n.519i1 87.4 16.2 40.4 45.3 92.3 5I2 30.9 - 29.7 42.3 - 53.019R2 153.7 28.8 65.7 72.0 167.9 73.1 41.4 - 55.1 63.9 - 77.7

*/ include consumptIlon crodit, that In 1982 represented 4.5% of total credit and 3.4% of GP.

Source of basilc data: Credit cemositIon: Suparlntendancla de Bencos a Instituciones Flnanclures GOPcoositiont Banco Central do Chile. IxE

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