A study prepared by officials from the Central Reserve Bank of Peru (BCRP) examines the actual impact of special economic zones in Peru. Its conclusion: offering tax exemptions, on its own, is not enough.

Special economic zones are a powerful tool, but not an exhaustive solution

Created as spaces to attract private investment, promote foreign trade, and drive regional development, special economic zones (SEZs) could be more productive in Peru if structural obstacles were addressed. That’s according to a recently published study prepared by officials from the BCRP.

Presented by Carlos Mendiburu, Iván Cosavalente, and Rubén Lema from the BCRP’s Structural Policies and Fiscal Policy departments, the document analyzes the development of SEZs around the world and assesses their performance in the country.

Highlights from “Economic Results from Special Economic Zones: Lessons from International Experience”

Releases incentives for specific businesses. The most common incentives offered in SEZs around the world are tax exemptions or reductions in corporate income tax. This benefit is usually accompanied by special customs regimes, logistical facilities, and simplified foreign trade procedures.

Tax exemptions do not automatically lead to successful zones. While tax benefits contribute to improving the profitability of investment projects, countries with the highest impact of SEZs on exports and employment combine these tools with structural policies that promote long-term improvements in infrastructure, human capital, innovation or logistical connectivity.

Structural factors matter more than incentives. Regardless of the incentives offered, special economic zones tend to be more successful when they are located near to major markets, have good access to roads and other infrastructure, provide efficient basic services (energy, telecommunications) and are close to skilled labor forces. Legal stability and certainty are also key.

SEZs’ success depends largely on domestic conditions, not just tax exemptions.

Special economic zones cannot resolve structural problems alone. Even in successful cases, they do not generate immediate effects, and their contribution to exports and employment is generally noticeable only in the medium term (between 5 and 10 years).

Diversification trends in SEZs

Move towards services and higher-value sectors. Initially oriented towards manufacturing activities with high levels of labor intensity, nowadays SEZs are also diversifying into services (digital services, logistics) and sectors with greater technological depth, specialization or value addition (tourism, renewable energies).

Local capacities condition their viability. The diversification of productive projects in SEZs is positive but requires, in turn, qualified human capital and a favorable climate for innovation. Without prior investments in these areas, it will be difficult to attract and consolidate these activities.

The Performance of Special Economic Zones in Peru

Four special economic zones are currently operating in Peru. They are Zofratacna (Callao), ZED Ilo (Moquegua), ZED Matarani (Arequipa), and ZED Paita (Piura). There are also four more zones underway in implementation processes and two others that have been declared of national interest.

Impact remains low despite the potential benefits offered. Tax exemptions make SEZs an attractive option for businesses; however, according to the BCRP study, these four currently operating zones have not managed to position themselves as relevant poles of exports or employment generation. In 2024, they represented only 0.1% of Peru’s total goods exports, while their total trade balance was negative.

Only 10,000 direct and indirect jobs have been reported for all SEZs put together.

Lack of diversification and inefficient use of infrastructure

Greater diversification in exports from ZED Paita. The BCRP study observes that ZED Paita is responsible for most of the exports recorded in SEZs nationwide and presents greater productive diversification than the rest. However, activities carried out by companies in most SEZs are explained by the inward processing of goods imported with little transformation value added.

Available space goes mostly unused. In ZED Paita, only 43% of the available area is used, while in ZED Ilo, the occupancy rate falls to 16%. In addition to indicating the limited use being given to existing infrastructure, this data suggests that the incentives being offered are still not enough to attract more sizable or complex projects.

Weak productive links with the local economy

The study highlights that special economic zones in Peru present low levels of backward and forward linkages with the surrounding economy. This severely limits their potential to drive regional development through the generation of indirect jobs and productive spillovers.

A generous regulatory framework

They receive wide-ranging exemptions. In addition to total exemption from corporate income tax and VAT, companies installed in special economic zones are exempt from municipal taxes and port tariffs (in ports), charges and tariffs from OSINERGMIN (electricity), OSITRAN (transport), and SUNASS (potable water and sanitation).

Tax exemptions are manageable due to low operation levels. Although generous, tax exemptions granted to SEZs have not represented a significant fiscal cost due to low levels of operation. SUNAT estimates reviewed by the BCRP study calculate that total exemptions reach 97 million soles per year.

No minimum conditions for companies. Special economic zones in Peru do not require a minimum investment or employment generation, unlike in other countries like Colombia or Costa Rica. What’s more, granting total exemption from corporate income tax (renta) is particularly generous if we consider that other firms outside SEZs pay income tax at progressively higher rates, even if their activities imply less value addition.

What to expect from new private Special Economic Zones in Peru

New SEZs with private participation were approved by law last year. Recently approved Law 32449 allows for the creation of Private Special Economic Zones, introducing changes to the previous model, such as a private management scheme and graduated tax system for up to 25 years.

Model improvements, but with risks. While changes introduce improvements in terms of zone governance, their success will depend on other underlying conditions that go beyond legal frameworks. Considerations should include whether there is sufficient infrastructure, good logistical connectivity, efficient basic services, and an environment of legal certainty that generates predictability.

Private SEZs should consider productive and logistics realities

Otherwise, they will replicate problems seen with current SEZs. If these factors are not considered, there is a risk that private SEZs become, like those already operating in Peru, tax shelters used to relocate activities rather than true centers of production that contribute to exports and employment.

A good tool if used correctly

Economic zones can be effective if complemented with other policies. Special economic zones can contribute to the country’s productive development as long as they are used as one of several tools aligned with a long-term strategy. However, if they are not accompanied by other improvements in infrastructure, human capital, or competitiveness, their impact will be limited.

There is a risk of competing against local companies. Establishing special economic zones with substantial benefits but without significantly improving the country’s structural characteristics can end up generating competition (including fiscal competition) with companies operating outside these zones.

Results in countries like Chile and Uruguay show that territorial economies of scale, service corridors, and other forms of productive integration can be more effective solutions than special economic zones to stimulate productive investment and drive regional development.

The European Union and Ecuador completed negotiations on a Sustainable Investment Facilitation Agreement (SIFA) on Friday, January 23, 2026, as the European Union (EU) touts the deal as the first SIFA signed with a Latin American nation. News agency EFE reported Brussels and Ecuador concluded talks on the agreement designed to bolster investment ties between the European Union and Ecuador.

EU Ambassador concluded deal designed to ‘facilitate’ investment

Reached after months of talks, the accord was touted by officials as another step forward in reforming the EU’s approach to investment governance, while also helping Ecuador as it looks to court foreign capital.

Brussels says the investment agreement will lead to better governance, transparency, and sustainability

The EU Commission said that the new agreement between the European Union and Ecuador aims to help improve governance and promote transparency while making the nation more attractive for investment.

Deal with Ecuador advances EU investment policy agenda

In particular, SIFAS seeks to enhance “administrative transparency” and help address issues that “retard or discourage investment, such as lack of clarity, administrative hurdles, and red tape.”

Friday’s agreement reflects Brussels’ ongoing efforts to frame EU investment policy around sustainable development.

EU-SIFAS are designed to attract private sector investment by way of boosting ‘transparency’ and responsible business standards.

EU Says Deal is Crucial for Investment Promotion

“The agreement is important for facilitating investment and is key for promoting EU investment in Ecuador,” the European Commission said in a statement quoted by EFE.

What is a Sustainable Investment Facilitation Agreement?

SIFAS differ from traditional investment treaties in that they are not focused on investor protections, nor do they include Investor-State Dispute Settlement (ISDS) mechanisms. Instead, the agreements lay out legally-binding parameters for how the two parties (the EU and a partner country) will cooperate on issues related to facilitating FDI, including responsible business standards.

Support improved “regulatory transparency” and attract investment

Negotiators from the European Union and Ecuador agreed Friday their new pact would support efforts at improving “regulatory transparency” and encouraging investors through commitments to improve the “legal and institutional framework’s predictability.”

Elements of the SIFA outline a mechanism for quicker investment-related decisions, reducing red tape for investors

The agreements seek to simplify administrative procedures, improve regulatory transparency, and “strengthen legal and institutional predictability.” Key components of the SIFA underlined by officials include establishing specialized contact points within member countries’ administrations to deal with investor inquiries.

Key officials noted the European Union and Ecuador would cooperate to establish clear channels of communication between investors and public authorities

That way, officials said, investors would be ensured a direct channel to raise questions with government authorities during the lifetime of their investments.

EU signals continued support for sustainable investment around the world

A stated aim of SIFAS, officials added, is to mainstream sustainability and responsible business practices into the EU’s broader trade agenda.

European Parliament Describes Sustainability Pacts as “Promoting Transparency”

Referring to the bloc’s first-ever SIFA, which was finalized with Angola earlier this year, the EU Parliament wrote that these agreements are meant to “promote transparency, expedite administrative procedures and foster responsible business conduct.”

EU-SIFAS include entire chapters dedicated to issues of sustainability. The text of the EU’s agreement with Angola emphasizes the parties’ shared commitments to environmental protection, social issues like labor rights, and adherence to principles of responsible investment.

Agreements seek to prevent disputes, facilitating consultations between member nations

What’s more, unlike many traditional investment treaties, SIFAS do not include ISDS provisions. While they are not explicitly aimed at replacing traditional investment agreements, SIFAS place heavy emphasis on preventive diplomacy and include consultation mechanisms for member states to cooperate in addressing disputes.

Ecuador Deal Advances EU Agenda to Diversify Investments

EU’s successful conclusion of a SIFA with Ecuador advances the bloc’s agenda to develop deeper trade ties with countries around the world it deems politically aligned and stable.

The EU invested €4.5 billion into Ecuador between 2008 and 2022, ranking first for foreign direct investment (FDI)

As geopolitics have evolved in recent years, and the global economy continues to recover from supply chain shocks caused by the COVID-19 pandemic, Brussels has looked to strengthen relations with friendly nations in an effort to diversify supply chains and capture greater shares of investment projects around the world.

The EU is already Colombia’s largest investor, says the European Commission

Negotiations between the European Union and Ecuador began last year, with Brussels announcing the launch of talks with Ecuador in November 2022. At the time, the European Commission said the EU was already Ecuador’s largest foreign investor.

EU hopes SIFA will encourage faster, more streamlined investment activity in Ecuador

The Commission said the new agreement would update the legal framework for EU investors in Ecuador by “reducing bureaucracy” and increasing “legal certainty” for future investments in the country.

EU, Ecuador push past talks on Renewable Energy sector, Comprehensive Association Agreement

The two countries have maintained a trade agreement in goods and certain services since 2017, when Ecuador joined the EU’s preexisting Colombia-Peru Trade Deal.

A Comprehensive deal could lead to further investment down the road

Friday’s investment facilitation agreement complements the ongoing trade relationship between Ecuador and the EU by focusing specifically on investment and the promotion of it between the two.

Ecuador looks to EU investment to help fill financing gap, create jobs, and increase formal employment

The media in Ecuador has followed the administration’s efforts to court greater European investment. Sectors Ecuador has previously courted European investors in include renewable energy, infrastructure, logistics, and sectors with high export potential. Those requests have been made in the context of Ecuador’s need for financing, employment generation, and increased formalization of employment.

El Salvador’s net international reserves increased 29% to $4.484 billion during December 2025, reaching their highest level ever and generating positive sentiment for local businesses and foreign investors. In addition to having greater economic coverage to face any unforeseen event, Salvadoran international reserves give greater confidence to entrepreneurs and exporters interested in sustainable investment projects and members of the Salvadoran diaspora.

Net international reserves closed December 2025 at $4,484.49 million, up from $3,482.86 million from December 2024, as reported by the Central Reserve Bank of El Salvador (BCR, for its acronym in Spanish).

During the whole year, Salvadoran international reserves managed to appreciate in value despite a challenging international context characterized by high interest rates and a low liquidity environment. In fact, exceeding $4.48 billion represents an achievement amid a restrictive financial cycle during which many economies have been affected by financial turbulence in international markets.

Why do international reserves matter?

International reserves are essential because they allow countries to cover short-term payment commitments; maintain confidence in economic policy, exchange rate stability, and the smooth functioning of financial markets.

The International Monetary Fund (IMF) defines international reserves as assets that are “held by monetary authorities in freely usable currencies and can be used at their discretion for balance-of-payments purposes”.

Looking at the latest figures released by El Salvador’s monetary authority, the nearly 29% increase in international reserves during 2025 means that El Salvador is in a better position than a year ago to face external contingencies and finance external debts.

Increases in Salvadoran international reserves are positive for foreign investors because they are reflected in lower country risk and contribute to generating a better investment climate. Meanwhile, Salvadoran entrepreneurs need external resilience to develop medium- and long-term projects safely.

International reserves remained stable during the last quarter of 2025

Recorded in September with $4.782 billion, the highest level of international reserves was reached during Q3 of 2025. This level would drop to $4.649 billion in October, $4.518 billion in November, and finally $4.484 billion in December.

Despite easing during the last quarter of 2025, international reserves exhibit signs of orderly conduct instead of abrupt depreciations, showing prudent management by El Salvador’s Central Bank even as liquidity conditions eased during the last months of the year.

Composition and backing of international reserves

El Salvador’s monetary authority reports that $4.347 billion corresponds to foreign currency reserves, totaling $4.484 billion.

This conservative level in composition gives monetary authorities more flexibility when dealing with adverse external shocks and provides strong backing for the rest of the assets that make up international reserves.

More than half of the reserves accumulated during 2025 are backed by a $1.4 billion agreement signed with the International Monetary Fund (IMF).

The IMF program seeks to help rebuild fiscal and external sustainability while also strengthening international reserves.

Fiscal consolidation will focus on guaranteeing fiscal sustainability without jeopardizing economic recovery. The program includes measures specifically designed to increase international reserves.

The program reaches $1.4 billion and will help rebuild fiscal strength

The IMF-backed program seeks not only to rebuild fiscal strength but also external strength by directly increasing international reserves and sending signals to markets.

Although details regarding the effort required to comply with IMF conditions have not yet been released, central bank figures show notable progress in terms of rebuilding international reserves and backing them up with direct financing from the international financial institution.

Implications for diaspora and local investors

The increase in international reserves signals an improvement in El Salvador’s investment climate. International reserves reduce exposure to external shocks and finance external debt, increasing the likelihood of stable growth in the coming years.

Greater accumulation of international reserves:

• Could translate into more stable interest rate conditions and easier access to finance from international markets.
• Allows authorities to have more space for enacting public policies designed to support entrepreneurship, create jobs, and boost productivity.
• Boosts confidence in the local financial sector, a key consideration for foreign investors looking to commit capital during long-term investments.

Higher international reserves can benefit entrepreneurs who are interested in exporting goods or services. External resilience promotes credit conditions and opens the door for greater growth in sectors such as manufacturing, commerce, and tourism.

Conclusion

Strengthening international reserves is a clear signal that El Salvador is committed to consolidating economic resilience against external shocks. Positive net reserves help businesses of all sizes plan for the future, knowing that there is less likelihood of an external crisis due to inadequate liquidity to finance international debts.

El Salvador will continue to reap benefits if macroeconomic policies remain consistent and prioritize the creation of a business-friendly environment where anyone can invest, innovate, and create jobs.

President-Elect Nasry Asfura of Honduras recently met with U.S. Secretary of Commerce Howard Lutnick in what is becoming a clear articulation of foreign policy priorities before his January 27  inauguration. Trade, investment, and job creation will be central themes of President-Elect Asfura’s economic diplomacy moving forward, a message that he communicated strongly during his meeting with Secretary Lutnick. This early outreach underscores a broader strategy focused on Honduras strengthening trade and investment relationships with key international partners, particularly the United States.

Trade and investment take on added importance considering the economic realities in Honduras. Informality, unemployment, and migration remain significant challenges. Trade agreements and mutually beneficial foreign investment can play an outsized role in creating jobs and improving the livelihood of Honduran citizens, especially as the country seeks to integrate more deeply into regional and global value chains.

Bilateral trade with the United States

The primary topic of discussion between Secretary Lutnick and President-Elect Asfura centered on bolstering Honduras’ trade relationship with the United States. Expanding trade flows, providing better access to U.S. markets, and strengthening supply chains were all topics discussed in depth during the meeting. Secretary Lutnick noted that Honduras has an opportunity to play a larger role in supply chains as companies rethink their geographic footprint post-pandemic, a shift that aligns closely with efforts aimed at Honduras strengthening trade and investment through nearshoring.

In particular, Lutnick and Asfura discussed the potential for Honduras to benefit from nearshoring as companies look to diversify their supply chains by moving production closer to the United States. Mexico and countries throughout Central America are well-positioned to benefit from increased trade and investment as a result of nearshoring trends. Countries with free trade agreements with the United States, like the members of CAFTA-DR, will be especially competitive.

Honduras is no stranger to export manufacturing. The country has a robust history in apparel manufacturing and agriculture. Honduras also has an existing maquiladora sector that could provide ready capacity for companies looking to relocate nearshore production closer to home.

Investment for Development and Job Creation

Job creation was another major theme that came up during President-Elect Asfura’s meeting with Secretary Lutnick. Nasry Asfura has made it clear that attracting foreign direct investment will be one of the priorities of his administration. “For me, investment has to bring jobs,” Asfura said. “That is how we are going to increase the quality of life.”

Secretary Lutnick reiterated President Trump’s commitment to expanding trade and economic cooperation with countries that promote mutual economic benefits. “We want to engage with countries that want to open their markets to U.S. businesses, as well,” Lutnick said. “The days of one-way streets are over. We want to grow commerce in a way that creates real growth and real jobs for America too.”

Investment can do more than provide an initial influx of capital to jumpstart the economy. By connecting Honduran producers to international markets and expertise, FDI can provide a platform for sustainable development and economic prosperity. These linkages will be essential as Honduras works toward long-term competitiveness and inclusive growth.

Attracting investment will require reforming Honduras’ investment climate. Asfura has promised to take steps to improve legal certainty, administrative efficiency, and public-private coordination. By instituting reforms that make Honduras a more attractive destination for investment, the Asfura administration hopes to provide more jobs and improve the quality of life for Hondurans.

U.S.-Honduras trade relations

The United States is Honduras’ most important trading partner. In fact, about half of Honduran exports go to the United States. Honduras relies heavily on remittances from citizens living abroad, with the United States serving as the source of the majority of remittances sent to Honduras. Likewise, most foreign direct investment in Honduras originates from the United States, reinforcing the importance of Honduras strengthening trade and investment ties with its northern neighbor.

Honduras’ top exports to the United States are apparel, coffee, bananas, electrical equipment, and maquiladora production. Conversely, the United States exports consumer goods and services to Honduras. American companies are major investors in Honduras across a range of sectors including manufacturing, agriculture, and energy. U.S. businesses also provide vital services that enable economic activity in Honduras.

“I think that relations with the United States are very important,” Asfura said in an interview with El Heraldo. “Investment, trade, development aid, all of these things go hand in hand.”

Investment and nearshoring opportunities in Honduras and Central America

Honduras’ proximity to the United States and access to skilled, affordable labor make Central America an attractive option as companies seek to nearshore production. Strengthening trade ties and attracting investment will be critical to positioning Honduras as a leading destination for foreign companies.

Nearshoring could provide a boost for export manufacturing in Honduras. By improving upon factors that businesses care about when choosing a place to operate, Honduras can attract investment and generate badly needed jobs, particularly in industrial corridors with existing infrastructure.

Improving diplomatic ties with Israel

President-Elect Asfura has stated that one of his first trips abroad as president will be to Israel. The Honduran president-elect will seek to improve Honduras–Israel relations by restoring the nations’ relationship to an ambassadorial level. Honduras downgraded diplomatic ties with Israel to the charge d’affaires level in 2025.

As part of his trip, Asfura will also visit Grupo Xalia, a Mexican company with strong ties to Israel’s agricultural exports sector. Grupo Xalia will give the President-Elect an opportunity to learn about Israeli agricultural technology that could have applications in Honduras.

Israel is no stranger to providing development assistance in Honduras and Central America. If done correctly, strengthening Honduras-Israel ties could be mutually beneficial and help Honduras strengthen trade and investment ties abroad.

Conclusion

Overall, the proactive outreach to high-ranking U.S. government officials by President-Elect Nasry Asfura early on in his transition is already indicative of his administration’s commitment to adopt a foreign policy with an outward-looking orientation, centered on economic diplomacy. Seeking to expand trade relations, attract foreign direct investment, and create jobs through linkages with international markets will be vital tools to put Honduras on a sustainable growth path that can begin to reverse decades of high unemployment, informality, and emigration from the country.

Deepening economic relations with its biggest trade partner will also provide Honduras with many opportunities to further integrate into regional value chains, benefit from nearshoring, and expand and upgrade its export sectors. Likewise, Asfura’s goal of improving the investment climate will be necessary to ensure that, beyond trade agreements and geographic proximity, legal certainty, efficiency, and coordination between the public and private sector will allow Honduras to reach its growth potential. In that sense, re-establishing diplomatic relations with Israel and outreach to other partners will contribute to diversifying the country’s economic ties while also attracting technology, knowledge, and investment.

Surging copper prices, anticipated fiscal restraint, and recovering confidence have resulted in the strongest inflow of foreign capital in years, consolidating Chile’s narrative as a haven that draws global capital when investors elsewhere reassess risk.

International investors have been snapping up Chilean local-currency bonds at the quickest pace ever as higher copper prices, changing political expectations, and signs of fiscal consolidation fuel demand. Increased appetite for peso-denominated bonds is helping to strengthen the peso, drive down financing costs, and put Chile back among Latin America’s most favored markets. Chile attracts global capital to bonds for several reasons, but interest in Chile’s peso bonds has been particularly notable this year as it breaks a multi-year trend of low foreign investor participation and impacts key aspects of Chilean government financing and financial stability.

Foreign holdings of local-currency sovereign bonds surged to a record US$14 billion in November 2025, more than doubling the US$6.6 billion at the end of 2024. The increase has also far outpaced that of other countries in the region, as Chile captures investors’ attention after several years of cautious behavior by many large international investors.

Several factors are behind this turnaround. Higher prices for the red metal, as well as expectations of a shift toward more orthodox policies following President-elect José Antonio Kast’s election, are driving the rush into Chilean assets. Kast has promised to rein in public spending and outlined plans for fiscal consolidation.

The external backdrop is helping as well. With many investors saying U.S. assets have lost their luster, many are scouring emerging markets for better prospects. Chile’s status as an investment-grade economy with strong institutions and deep financial markets makes it stand out from its peers.

“The total return generated from both interest rates and the currency made Chilean local bonds one of the most attractive risk-return profiles in what has been a favorable environment for Latin American local markets,” Anders Faergemann, senior portfolio manager at PineBridge Investments, told Bloomberg. “We felt we had an opportunity in the CLP because it was mispriced relative to where we saw the fundamentals going,” he added.

Rates, currency, and markets

Evidence of the sustained capital inflows is already visible across a variety of financial indicators. The spread investors demand to own Chilean dollar-denominated debt over Treasuries has plunged to its lowest level in almost two decades.

Markets are rallying. Chile’s benchmark IPSA stock index touched a record this week, and the peso has soared. The currency has appreciated 11.6% versus the dollar in the past year and has added another 2.2% in the first weeks of January 2026. It currently trades around 880 pesos per dollar, its best level since February 2024.

Faergemann added that “when we started buying Chilean peso bonds in the summer of 2025, the Chilean peso had underperformed most Latin American currencies. However, it has since rebounded with the renewed investor focus on fiscal consolidation, which was reaffirmed with Kast’s victory speech the night he won the election.”

Appreciation of the peso, along with declining yields, lessens the Treasury’s debt service costs. It also improves conditions for the private sector by cutting borrowing costs and buttressing macro stability.

Fiscal adjustment and market expectations

President-elect Kast’s commitment to slashing US$6 billion in public spending during his first year-and-a-half in office has been critical in renewing investor interest. If carried out, it would mark the biggest fiscal tightening since the mid-1970s.

Peer economies offer few comparables, with Chile standing out for having trimmed its fiscal deficit last year while most of its neighbors are seeing public finances deteriorate. In Brazil, foreign investors’ holdings of local debt increased 15% during the first eleven months of the year; in Mexico, they declined 6%; and in Colombia, they increased 60% as of November, mostly due to “non-recurrent” transactions related to specific bond issuances.

“It stands out as one of the few countries in the world with an investment-grade rating, strong fundamentals, and some very nice tailwinds from a global perspective,” said Andres Perez, chief economist for Latin America at Itaú Bank.

Today, roughly 11.4% of the Chilean government’s locally issued debt is owned by foreigners. That’s the highest level since the second quarter of 2022 and well above the 8% share recorded at the end of last year. The figure now puts Chile back on par with its most attractive Latin peers.

The role of copper prices

But the rally also owes to rising copper prices, which jumped to an all-time high earlier this month and are currently up nearly 44% from last year. As the red metal accounts for roughly 50% of Chile’s exports and a meaningful share of tax revenues, higher prices boost the country’s balance-of-payments and fiscal accounts.

Prices have also helped narrow the current account deficit, which by the third quarter of 2025 dropped to its lowest level in four years. That helps solve worries about external sustainability and lowers financial fragility.

Faergemann points out that “foreign investors will continue purchasing Chilean local bonds unhedged going forward, and we believe recent gains will be sustained. This will reduce market volatility and reinforce the attractive positive carry-volatility trade.”

He noted that while “a chunk of the Chile rally has already happened, we believe that Chile has several of the themes that global investors are looking for right now: stability, strong fundamentals and improving terms of trade.”

As a result, yields on five-year peso-denominated bonds have fallen by 29 basis points since November and are currently around 5.08%, their lowest level in over two years. Declining rates are another way this renewed confidence is manifesting itself.

Reduced financing needs

Higher revenues from copper, coupled with lower spending, could mean Chile issues less debt going forward. The current fiscal budget anticipates the issuance of around US$17.4 billion, of which 70% would be in local currency and 30% in foreign currency. If there is fiscal consolidation, however, that amount could shrink.

“If copper prices stay high, then revenues related to mining should surpass forecasts,” Pérez added. He noted that higher revenues, along with lower spending, should result in a lower amount of needed financing.

Lower issuance also carries implications for investors. “If that supply goes down, then rates should continue declining,” said Mariano Álvarez, a fixed-income manager at LarrainVial.

Change of sentiment for Chile

While numbers tell part of the story, the phenomenon also reflects a change in sentiment about Chile specifically. After years of political turmoil and uncertainty over the country’s future direction, Chile is back on investors’ radar screens as one of emerging markets’ more reliable bets.

The flood of foreign money into Chilean local bonds does more than give markets depth_. It improves the government’s ability to finance itself, helps maintain a stable currency, lowers market volatility and lays the groundwork for higher levels of productive investment.

The difficult part now will be to prove investors right and keep capital flowing. For as long as the fiscal adjustment remains a promise rather than a reality, bets on Chile will be accompanied by skepticism. Chile attracts global capital unlike its regional peers by changing investors’ minds. Now it must show it can deliver.