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UNCLAS SANTIAGO 000931 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EIND PGOV ELAB SOCI EWWT EAGR EFIS CI PE BL
SUBJECT: ECONOMIC WOES AT CHILE'S NORTHERN BORDER 
 
¶1.  SUMMARY:  Arica, Chile's northernmost city, faces 
multiple economic challenges, including the 2000 kilometers 
that separate it from Santiago and competition from cheaper 
Peru, which is just a short drive north.  This city, once 
part of Peru, has the highest unemployment rate in Chile and 
poverty rates that are among the nation's highest.  Maritime 
shipping--especially cargo from landlocked Bolivia--is a 
major local industry, and the city's economic hopes are 
pinned on agriculture, fishing, tourism, and mining. END 
SUMMARY. 
 
¶2.  Poloff met with elected officials, law enforcement 
officers, business leaders, press, academic officials, and 
indigenous leaders in the Arica and Parinacota region of 
northern Chile October 1-3.  Septels will report on local 
political issues and border challenges in the area. 
 
Poor Arica:  So Far From Santiago and So Close to Tacna 
--------------------------------------------- ---------- 
 
¶3.  Descriptions of Arica today cannot help but falter in 
comparison to stories of Arica's heyday in the 1940s to 
1960s.  During that period, Arica's manufacturing-based 
economy boomed, with local factories turning out televisions, 
refrigerators, and processing fish for export throughout the 
region.  However, neither the Allende nor the Pinochet years 
were kind to the area.  Allende's economic policies 
negatively impacted the whole country, while Arica was hard 
hit by the lower tariffs ushered in by Pinochet. 
 
¶4.  Today, many local businesspeople lament that Arica 
suffers from being so far from Santiago while being so close 
to southern Peru.  The 2000 km that separate Arica from the 
nation's capital make shipping extremely costly and make 
Arica a relatively unattractive place for Chilean industry. 
At the same time, the proximity of Tacna, Peru--an hour's 
drive away--hurts the local economy.  Budget-conscious 
Aricans spend their weekends in Peru enjoying that country's 
cheaper goods and services.  Meanwhile, nearly anything that 
could be produced in Arica can be made for less in Peru, 
which has much lower wages.  Several Aricans compared their 
city to San Diego with its inextricable link to less 
prosperous and cheaper Tijuana, Mexico.  Both Tacna and the 
Chilean port city of Iquique, 300 kms south, are free trade 
zones, leaving Arica in an isolated and economically 
inhospitable location according to the Chamber of Commerce 
president. 
 
Arica Struggles with Poverty and Unemployment 
--------------------------------------------- 
 
¶5.  Although still relatively well-off when compared to 
neighboring areas in Peru and Bolivia, Arica is one of 
Chile's poorest regions, with a poverty rate of almost 19%, 
five points higher than the national average.  Poverty is 
particularly common among children and the indigenous, with 
24% of all indigenous Aricans and 22% of all children under 
17 falling under the government's poverty threshold of 
roughly USD 77 per person per month. 
 
¶6.  Arica struggles with the highest unemployment rate in the 
country, according to former Intendente and current mayoral 
candidate Patricio Zapata:  11.4% compared to the national 
average of 7.8%.  (Note:  The most recent national 
unemployment statistic collected by Chile's Central Bank was 
8.2% for August.  They had no statistics for Arica 
specifically.  End Note.)  General Motors, which operated the 
last of Arica's major factories, just closed its doors a few 
months ago, laying off 600 direct employees and an additional 
600 indirect employees, such as contractors.  Adding to the 
city's labor woes are the presence of undocumented Peruvian 
workers.  Under the Tacna-Arica Agreement, residents of 
either city can cross the border and enter the other city for 
up to 7 days without a passport or visa.  While this 
agreement is not supposed to be used to facilitate 
employment, District Attorney Jorge Valladares estimated that 
3,000-4,000 Tacnans work illegally in Arica and commute home 
on the weekends. 
 
Economic Hopes Pinned on Agriculture, Tourism, and Shipping 
--------------------------------------------- -------------- 
 
¶7.  Agriculture, fishing, maritime transportation, and 
tourism are the backbone of Arica's economy.  Significant 
investment in irrigation has produced an agriculture boom. 
 
Arica's busy port is important both to the city and to 
neighboring Bolivia:  70% of the cargo shipped from Arica is 
Bolivian.  Intendente Luis Rocafull, the centrally appointed 
regional governor, revealed that the Chilean and Bolivian 
governments have agreed to construct a railroad linking Arica 
and La Paz, to open in April 2010.  Outside of these sectors, 
many Aricans are self-employed entrepreneurs, supporting 
themselves in activities ranging from operating a small chain 
of home furnishing stores to informally (and illegally) 
importing used American clothing to Tacna.  (Note:  Peruvian 
law prohibits the importation of used clothing, creating a 
thriving market for Chileans who smuggle it over the border. 
End Note.) 
 
¶8.  Senator Jaime Orpis, a member of the conservative 
Renovacion Nacional party, told Poloff that he plans to 
present to La Moneda an economic development plan that would 
promote mining, agriculture, and tourism in the region.  He 
predicts opposition to provisions that would open 40,000 
hectares of environmentally protected land to mining and 
objections to the water resources needed for additional 
agriculture, assessing his tourism promotion component as 
having the best chances of success. 
 
¶9.  COMMENT:  Arica's economic struggles have hurt its pride, 
particularly as the city seems to be forever comparing itself 
today to its boom years of the 40s, 50s, and 60s.  While the 
city is struggling--particularly in comparison to the 
relative prosperity of much of the rest of Chile--residents 
display a remarkable loyalty to this northern outpost. 
Citing a low cost of living, fabulous weather, low crime 
rates, and family roots, many Aricans have opted to work at 
mines 400 to 700 km away--spending several days in a row at 
the mines and then returning to Arica for several 
days--rather than leave their beloved city.  That sort of 
loyalty, combined with tourism promotion, a new rail link, 
and growth in the agriculture industry, is likely to ensure 
that Arica's economy will continue to putter along, althought 
the city is unlikely to ever regain its former glory.  END 
COMMENT. 
SIMONS