VZCZCXYZ0017
OO RUEHWEB

DE RUEHSG #1024/01 3262128
ZNR UUUUU ZZH
O 212128Z NOV 08
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3979
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEKJCS/SECDEF WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SANTIAGO 001024 
 
STATE PLEASE PASS TO USTR KATE DUCKWORTH 
STATE PLEASE PASS TO FEDERAL RESERVE TOM CONNORS 
TREASURY FOR SSENICH 
COMMERCE FOR KMANN 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV ECIN PGOV PREL CI
 
SUBJECT:  CHILE:  ECONOMIC HIGHLIGHTS WEEK OF NOVEMBER 17 
 
REFS:  SANTIAGO 1011 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 21, there were decreases 
across the board in copper prices, the exchange rate, and the stock 
market.  Chilean exports dropped by 6.2% in October.  Large 
investment projects have been suspended and investment is forecast 
to fall in 2009.  A strike by public sector employees had caused 
significant export losses.  The GOC's agreement to raise wages for 
government workers was not expected to have a direct impact on 
inflation.  The Central Bank is continuing to offer currency swaps 
to maintain liquidity.  The state-owned BancoEstado is offering 
incentive mortgages to help spur housing starts.  END SUMMARY. 
 
Copper Prices Decrease 
---------------------- 
 
¶2.  Copper prices on the London Metals Exchange closed at 
$1.57/pound on November 21, down 6.5% from their close on November 
¶14.  Copper prices hit their lowest point in three and a half years 
during the week, bringing the average price for November to about 
$1.70/pound. 
 
¶3. Chile's state copper company, CODELCO, announced November 18 it 
will focus on preventing losses due to the continuing fall in copper 
prices.  The steps will include:  cost control measures, austerity 
and fiscal discipline, suspending the hire of new workers, and 
revision of existing contracts.  Experts now project that copper 
prices will not be high enough to cover the GOC's 2009 budget, with 
some forecasting a 1% budget deficit next year. 
 
Chilean Peso Depreciates Against Dollar 
--------------------------------------- 
 
¶4.  On November 21, the exchange rate closed down sharply (by almost 
20 pesos) at 683 Chilean Pesos to 1 U.S. Dollar (a depreciation of 
6.7% from its close on November 14).  During the day, the peso 
reached a 5-year low. 
 
Significant Losses In The Stock Market 
-------------------------------------- 
 
¶5.  The IPSA closed at 2369.65 points on November 21, down more than 
7% on the close of November 14.  The IPSA has lost value for five 
days in a row. 
 
Exports Drop In October 
----------------------- 
 
¶6.  Data from Chilean Customs shows exports decreased by 6.2% in 
October 2008 when compared with the same month in 2007 (a decrease 
of almost $400 million).  The drop is blamed on reduced copper 
shipments (down by 20%) due to lower demand (reflected in lower 
copper prices).  Copper still accounted for 61% of exports.  Exports 
also decreased because of a fall-off in demand from several key 
trading partners.  Exports to the U.S. dropped by 30% (the U.S. was 
Chile's second top export destination in 2007), and exports to 
Canada dropped by 50%. 
 
Large Investments Postponed, Projections Fall 
--------------------------------------------- 
 
¶7.  The Chilean Corporation of Capital Goods (Corporacion de Bienes 
de Capital - CBC) reported that 19 major investment projects in 
Chile have been suspended due to effects of the financial crisis 
(involving investments estimated at $2.36 billion).  Construction 
projects accounted for 17 of the 19.  Latin America Consensus 
Forecast projected a sharp drop in investment, with gross fixed 
capital formation forecast to grow 16.8% in 2008 but only 1.9% in 
¶2009. 
 
Effects of Government Strike 
---------------------------- 
 
¶8. A four-day strike by public sector employees caused significant 
disruption to public services (most notably trash collection) across 
Chile.  It ended November 20 when the Chilean Congress approved a 
compromise between the GOC and public sector unions for a 10% raise 
in wages.  Government employees had originally demanded a 14% raise, 
ostensibly because of Chile's relatively high inflation.  Some 
experts estimate that Chilean exporters lost over $1 billion as 
result of the strike, which paralyzed Customs operations across 
Chile (and occasioned some frantic calls by U.S. exporters to the 
Embassy and the Department).  However, the raise for public sector 
employees was not expected to have a direct impact on inflation. 
 
Central Bank Continues Currency Swaps 
------------------------------------- 
 
¶9.  The Central Bank continued to offer currency swaps to help 
maintain adequate levels of liquidity in the banking system.  The 
Bank offered $500 million on November 18 for 63 days at LIBOR + 106 
basis points.  Banks opted to use only $100 million. 
 
State Bank Offers Incentive Mortgages 
------------------------------------- 
 
¶10. On October 18, BancoEstado (state-owned bank) signed a deal with 
30 real-estate companies across the nation.  Under the agreement, 
BancoEstado will offer 30-year mixed-rate mortgages at 3.9% for the 
first 36 payments, for up to 90% of the assessed value of the home. 
The mortgages will only be available for new homes and are designed 
to spur housing-starts (negatively impacted by the global financial 
crisis).  The mortgages will be made available largely from an 
injection of funds from the Government (see Santiago 989). 
SIMONS