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O 171038Z NOV 08
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3966
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UNCLAS SANTIAGO 001011 
 
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STATE PLEASE PASS TO FEDERAL RESERVE TOM CONNORS 
TREASURY FOR SSENICH 
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E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV ECIN PGOV PREL CI
 
SUBJECT:  CHILE:  ECONOMIC HIGHLIGHTS WEEK OF NOVEMBER 10 
 
REFS:  SANTIAGO 989 AND PREVIOUS 
 
¶1.  SUMMARY:  This continues a series of regular updates on major 
developments in Chile's economy since the acceleration of global 
financial turmoil.  By week's end, November 14, there was a slight 
decrease in copper prices and relative stability in the exchange 
rate and stock market.  Fitch Ratings reduced Chile's credit rating 
to "stable."  The Central Bank maintained interest rates at their 
current level, revised many economic projections downward, and 
injected more liquidity in the banking system.  Private pension 
funds reported further losses.  Consumer confidence fell.  Figures 
were released on mergers and acquisitions.  Chile fell in the 
rankings for the "Paying Taxes 2009" report.  END SUMMARY. 
 
Copper Prices Decrease 
---------------------- 
 
¶2.  Copper prices on the London Metals Exchange decreased November 
14, closing the week at $1.68/pound, down almost 2% from their close 
on November 7. 
 
Chilean Peso Remains Relatively Stable 
-------------------------------------- 
 
¶3.  On November 14, the exchange rate closed at 637 Chilean Pesos to 
1 U.S. Dollar (practically the same level as its close on November 
7). 
 
A Stable Week For The Stock Market 
---------------------------------- 
 
¶4.  The IPSA closed at 2550.91 points on November 14, down less than 
1% on the close of November 7. 
 
Fitch Reduces Chile's Credit Rating to "Stable" 
--------------------------------------------- -- 
 
¶5.  On November 10, Fitch Ratings announced a change in Chile's 
credit rating, from "positive" to "stable." Chile's long-term 
foreign currency Issuer Default Rating (IDR) was set at "A" and its 
long-term local currency IDR was set at "A+" ("AAA" is Fitch's top 
rating).  Fitch justified the decision noting a global recession 
would disproportionately impact Chile's small economy and the 
decline in commodity prices would hurt its external liquidity 
position.  Fitch believed Chile's macroeconomic policies, fiscal 
management, and flexible exchange rate would help it absorb shocks. 
 
Central Bank Keeps Rates Steady, Revises Forecast 
--------------------------------------------- ---- 
 
¶6.  In its monthly meeting, November 13, the Board of the Central 
Bank of Chile decided to maintain the monetary policy interest rate 
at 8.25% annually (unchanged from the previous two months).  The 
Central Bank also committed to reduce inflation to 3% over the 
policy horizon.  In October, inflation was high (0.9% for the month, 
9.9% annualized) and various measures of core inflation remained 
elevated.  Wage dynamics continue to be in line with historical 
patterns and medium-term inflation expectations have fallen. 
 
¶7.  The Central Bank also unexpectedly revised its key economic 
projections downward for 2009.  GDP growth was forecast at 4% - 4.5% 
in 2008 (down from 4.5% - 5%) and between 2% and 3% in 2009 (down 
from 3.5% - 4.5%).  The price of copper was projected at an annual 
average of $1.65/pound for 2009 (down significantly from 
$3.10/pound).  Inflation was predicted to fall to 4% in 2009 (down 
from the previous projection of 4.9%). 
 
Central Bank Offers More Liquidity 
---------------------------------- 
 
¶8.  On November 11, the Central Bank, acting as Fiscal Agent for the 
Ministry of Finance, announced another step designed to inject more 
liquidity in the country's banking system.  The Bank began a 
seasonal surplus investment program in U.S. dollars through auction 
of 91-day deposits in winning institutions.  The process was opened 
to all banking institutions or branches of international banks 
operating in Chile.  On November 12, the Central Bank opened the 
bidding process for the first $350 million.  Local banks acquired 
94.8% of the total amount offered, or $332 million, at LIBOR + 327 
basis points.  There will be a second auction on November 19 for 
$350 million. 
 
Private Pension Funds See Further Losses 
---------------------------------------- 
 
¶9.  The global financial turmoil took its toll on Chile's private 
pension fund system in October.  The riskiest "A Fund," which 
invests primarily in equities, lost 21.3% of its value (after a loss 
in September).  The pension fund system as whole was valued at more 
than $69 billion at the end of October, almost a 27% decline from 
its value in September. 
 
Consumer Confidence Drops 
------------------------- 
 
¶10.  In a monthly poll, the Chilean firm Adimark-GfK measures public 
perceptions of the economy on an index.  In their findings for 
October, consumer confidence dipped significantly.  On a scale of 1 
- 100 (100 being the best), Chilean consumer confidence rang in at 
34.5, its lowest point on the index since early 2002.  Chilean 
perceptions of the economic situation facing businesses also hit its 
lowest point since mid-2003.  Similarly, perceptions of future 
unemployment were at a six-year low (meaning those surveyed are 
expecting a marked increase in unemployment). 
 
Mergers and Acquisitions Reported 
--------------------------------- 
 
¶11.  According to a report issued by Ernst and Young Consulting 
Company, mergers and acquisitions in Chile totaled $5.1 billion from 
January to October 2008 (with some 42 transactions).  Transactions 
in the mining, energy and transportation sectors represented 70% of 
the total. 
 
Chile Falls In "Paying Taxes" Ranking 
------------------------------------- 
 
¶12.  Pricewaterhouse Coopers and the World Bank have published their 
"Paying Taxes 2009" report, which analyzes national tax regimes and 
the ease of paying taxes in each country.  Chile fell from number 34 
(last year) to 41 on the list (the U.S. was ranked number 46). 
According to the report, the total tax rate for businesses in Chile 
is approximately 26%, and they spend about 316 hours in a year 
preparing taxes.  The study is a significant component in the World 
Bank's "Doing Business" report. 
SIMONS