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DE RUEHSG #0927/01 2911038
ZNR UUUUU ZZH
O 171038Z OCT 08
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3820
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUEHSO/AMCONSUL SAO PAULO 0789
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEKJCS/SECDEF WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 SANTIAGO 000927 
 
STATE PLEASE PASS TO USTR KDUCKWORTH/MSULLIVAN 
TREASURY FOR SSENICH 
COMMERCE FOR KMANN 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV ECIN PGOV PREL CI
 
SUBJECT:  UPDATE ON CHILE'S ECONOMY:  OCTOBER 16 SEES MIXED DAY IN 
MARKETS 
 
REFS:  SANTIAGO 923 AND PREVIOUS 
 
¶1. (U) SUMMARY:  This is another in a series of updates on major 
developments in Chile's economy in the face of global financial 
turmoil.  On October 16 copper prices and the stock market fell, but 
the exchange rate appreciated.  Finance Minister Andres Velasco said 
in an interview that the Chilean economy was well protected from the 
global crisis.  Former Central Bank President Vittorio Corbo told a 
public seminar economic growth would slow.  An Embassy contact, on 
several company and bank corporate boards, sees hard times for 
Chile's smaller- to medium-sized enterprises.  Chile's Construction 
Association has been impacted by the crisis and is trying to spur 
housing starts.  END SUMMARY. 
 
Copper Prices Fall Further 
-------------------------- 
 
¶2. (U) Copper closed at approximately $2.21/pound, a drop of almost 
5% on yesterday's price.  This is copper's lowest price since March 
¶2006. 
 
Chilean Peso Edges Back Up vs. U.S. Dollar 
------------------------------------------ 
 
¶3. (U) The exchange rate closed up at about 622 Chilean Pesos to 1 
U.S. Dollar (an increase of less than 1% on yesterday's rate). 
 
Small Decrease In The Stock Market 
---------------------------------- 
 
¶4. (U) The IPSA fell by about 1.5% from yesterday's close. 
 
Finance Minister Reassures Chileans 
----------------------------------- 
 
¶5. (U) Finance Minister Andres Velasco said in an interview that the 
Chilean economy was well protected from the effects of the global 
financial crisis.  He underlined that Chile's banking sector was 
strong and the fall of commodity prices would help reduce 
inflationary pressures in the economy.  Velasco said lower copper 
prices would not affect Chile's fiscal policy.  He noted Chile's 
Sovereign Wealth Funds (worth more than $21 billion) and the Central 
Bank's reserves (worth more than $22 billion) were stabilizing 
forces that could help cushion Chile from some of the brunt of the 
crisis. 
 
Former Central Bank Head Predicts Slower Growth 
--------------------------------------------- -- 
 
¶6. (U) Influential former Central Bank President Vittorio Corbo told 
a public seminar that he expected Chile's GDP would grow by only 2 
or 3% in 2009, as a result of the global financial turmoil.  He 
predicted unemployment would increase and the best solution would be 
more flexibility in Chile's labor markets.  Corbo said the crisis 
would last one to two years and although national interest rates 
would continue to fall, banks would maintain higher rates because of 
continuing liquidity problems. 
 
Private Sector Board Member Sees Hard Times Ahead 
--------------------------------------------- ---- 
 
¶7. (SBU) An Embassy contact that sits on the corporate boards of 
several companies and major banks in Chile, reported that she 
thought the global financial crisis was going to have a significant 
negative impact on small- to medium-sized firms.  Access to credit 
would continue to be a problem, causing a slow-down in investment 
and even day-to-day operations.  This would produce greater 
unemployment.  She also noted the Central Bank's ongoing injections 
of liquidity into Chile's banking system were critical, having 
staved off "big problems" for some of Chile's major banks. 
 
Construction Association Wants To Spur Housing Starts 
--------------------------------------------- -------- 
 
¶8. (SBU) Embassy contacts at Chile's Construction Association 
(Camara Chilena de la Construccion -CCHC) believe the financial 
crisis is impacting the construction sector.  Many projects are 
already well financed, insulating them somewhat from the reduction 
 
SANTIAGO 00000927  002 OF 002 
 
 
in liquidity among Chilean banks.  However, new projects are being 
postponed because of problems with access to credit.  Public 
infrastructure projects have been the main engine of growth for the 
construction sector in 2008.  Individual homes and real estate 
construction have been weak and will likely see a further drop-off 
due to the crisis.  Average interest rates on mortgage loans have 
reportedly increased from 5.6% to 6.2% in the last month.  The CCHC 
has been pushing the GOC to take steps to ameliorate the situation, 
including subsidizing sales of new homes to encourage growth in 
housing starts. 
SIMONS