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DE RUEHSG #0170/01 0561856
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O 251856Z FEB 09
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4513
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEHQT/AMEMBASSY QUITO 2182
RUCPDOC/DEPT OF COMMERCE WASHDC

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E.O. 12958: N/A 
TAGS: ECON ENVR ENRG EFIN ETRD EINV PGOV PREL CI
 
SUBJECT:  DAS MCMULLEN MEETS WITH ECONOMIC, ENERGY, AND BUSINESS 
AUTHORITIES IN CHILE 
 
REF:  SANTIAGO 162 
 
¶1. (SBU) SUMMARY:  DAS Christopher McMullen met with officials at 
the Ministry of Finance, the National Energy Commission, business 
leaders, and the Central Bank Governor during his visit to Chile 
February 12-13.  Senior Finance Ministry staff told DAS McMullen 
that Chile's process to accede to the Organization for Economic 
Cooperation and Development (OECD) is moving ahead and bank secrecy 
legislation is expected in March.  The Acting Minister of Energy 
reported on the GOC's efforts to promote renewable energy and energy 
efficiency in Chile.  Business leaders described the tough 
environment they face as a result of the global financial turmoil. 
The Central Bank Governor asked the U.S.to promote Chile as a model 
of "prudent capitalism" in the wake of the world economic crisis and 
noted the economy's sound fundamentals.  END SUMMARY. 
 
¶2. (U) On February 12, DAS McMullen met with Ministry of Finance 
International Affairs Coordinator Raul Saez and separately with 
Acting Minister of Energy (and head of the National Energy 
Commission - CNE) Rodrigo Iglesias.  On February 13, the Ambassador 
hosted a breakfast for DAS McMullen and business leaders including: 
President of AmCham Ricardo Garcia, General Manager for the Chilean 
Mining Council Javier Cox, Corporate General Manager for Falabella 
(retail store chain) Juan Pablo Montero, Director of Research for 
CODELCO (Chile's state-owned copper company) Maria De Los Angeles 
Perez, Vice-President of Chile's Exporters Association (ASEXMA) 
Patricia Perez.  In a separate meeting February 13, DAS McMullen met 
with Central Bank Governor Jose De Gregorio.  The Ambassador, 
ESTHoff, and E/Poloff accompanied DAS McMullen to the energy 
meeting.  The Ambassador, E/Pol Counselor, and Econoff accompanied 
DAS McMullen to all the other meetings. 
 
Finance Meeting:  OECD Accession Moving Ahead 
--------------------------------------------- 
 
¶3. (SBU) At a meeting scheduled with Acting Finance Minister Maria 
Olivia Recart (who was unable to attend due to a conflicting 
appointment), DAS McMullen asked International Affairs Coordinator 
Saez about the state of Chile's economy.  Saez noted the impact of 
the global financial crisis had definitely hit Chile.  However, the 
country was well positioned to bear the brunt of the world-wide 
downturn with positive growth expected in 2009.  In addition, he 
noted implementation of the GOC's recently unveiled stimulus package 
is going well. 
 
¶4. (SBU) Saez stated that the OECD accession process is moving 
ahead.  The GOC needs to adopt legislation to resolve two key issues 
before Chile can accede.  A law loosening bank secrecy protections 
will be required to permit the exchange of information for tax 
purposes.  In addition, two other new laws will be necessary to 
implement Chile's obligations under the OECD Anti-Bribery 
Convention.  Saez reported the GOC intends to place draft 
legislation on both issues before Congress in March, so that it can 
be approved by June, and Chile can join the OECD by December 2009 or 
January 2010 (in keeping with President Bachelet's desire to become 
a member by the end of her term). 
 
Energy Meeting:  Chile Focused on Renewables 
-------------------------------------------- 
 
¶5. (SBU) During DAS McMullen's meeting with Acting Energy Minister 
Iglesias, he was told that responsibility for energy policy is 
currently distributed among several government agencies.  The 
formation of a Ministry of Energy is still under discussion in the 
Congress, but will likely be resolved by the end of 2009.  Iglesias 
emphasized the new Ministry of Energy will be responsible for 
sustainable energy policies and long-term planning, while CNE will 
focus on regulation.  Key policy themes will be environmental 
protection, global warming, and renewables. 
 
¶6. (SBU) Iglesias said the GOC wants to promote renewable energy and 
explore the possibility of using nuclear technology.  However, the 
cost of both will be the major factor.  He cited collaboration with 
Argentina as an example of how to make technology cost effective, 
although it involves political challenges.  Iglesias also referred 
to Chile's March 2008 law requiring that 5 percent of electricity be 
generated from non-conventional renewable sources (i.e., not large 
hydroelectric) by 2010 and ten percent by 2024.  He said the law is 
not very strong and falling oil prices make renewables less 
attractive. 
 
¶7. (SBU) In response to DAS McMullen's question about nuclear 
 
studies commissioned by CNE, Iglesias clarified there will be no 
decision on nuclear energy during President Bachelet's 
administration.  He stressed Chile is committed to increasing energy 
efficiency through its program launched in 2005.  However, despite 
intensive campaigns to reduce consumption, people change their 
behavior only until prices decline.  Iglesias praised Lawrence 
Berkeley National Labs' collaboration with the GOC's efficiency 
program and the benefits of learning from California's energy 
conservation experiences.  He responded positively to President 
Obama's idea of a hemispheric strategy on energy, but did not 
provide specific input. 
 
Breakfast with Business Leaders:  Difficult Environment 
--------------------------------------------- ---------- 
 
¶8. (SBU) Chilean business leaders told DAS McMullen of the difficult 
environment they were facing because of the global financial crisis. 
 AmCham President Garcia pointed out that Chile's openness and 
history have helped it adapt to the effects of the crisis. 
Falabella Corporate General Manager Montero noted that despite the 
current turmoil, his company's operations throughout the region are 
doing relatively well.  In Peru, Falabella had found it challenging 
to convince local employees and partners that their country was not 
immune to the crisis. 
 
¶9. (SBU) CODELCO Director for Research Perez noted the company had 
been hit hard by rising costs and copper's current low price. 
Significant losses were likely and CODELCO might need to ask for a 
bailout, much as GM in the U.S.  The company desperately needed an 
internal reorganization to become more competitive and efficient. 
Privatization might be possible, but probably only by a Concertacion 
president, not in an election year, and definitely not while the 
copper law remained unchanged.  The law currently stipulates that 
10% of CODELCO's revenues go to the military for equipment 
purchases.  Perez wryly wondered what entity would want to buy a 
company which automatically gives away 10% of its revenue every 
year. 
 
Central Bank:  Use Chile As An Example 
-------------------------------------- 
 
¶10. (SBU) Central Bank Governor De Gregorio recommended to DAS 
McMullen that the U.S. promote Chile as a model of "prudent 
capitalism" during the global economic downturn.  Chile's economy 
and others' (e.g., Brazil) had some of the highest growth rates in 
Latin America.  This might help convince countries like Ecuador or 
Bolivia to reconsider current policy.  The prognosis for Chile's 
economy was relatively favorable (De Gregorio compared it to 
Canada).  Inflation expectations were low, the Bank would likely 
meet its target inflation rate (3%) in three to four months, Chile's 
currency was strengthening, the financial system was solid, and no 
international lines of credit to Chile had been cut. (Note:  Some 
banks have told Post that a few lines of credit were cut in the fall 
of 2008. End note.) 
 
¶11. (SBU) De Gregorio reiterated Chile's sound economic 
decision-making warranted its inclusion in the G-20 or similar 
efforts at developing a new financial architecture.  The Ambassador 
said the U.S. was considering how to bring additional participants 
into that process.  DAS McMullen asked if the Bank was coordinating 
policy within the hemisphere.  De Gregorio noted that there was a 
lot of communication but no actual coordination given the variety of 
domestic circumstances. 
SIMONS