VZCZCXYZ0005
OO RUEHWEB

DE RUEHSG #0217/01 0681022
ZNR UUUUU ZZH
O 091022Z MAR 09
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4594
INFO RUEHQT/AMEMBASSY QUITO 2209
RUCNMER/MERCOSUR COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEKJCS/SECDEF WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SANTIAGO 000217 
 
STATE PLEASE PASS TO USTR KATE DUCKWORTH 
STATE PLEASE PASS TO FEDERAL RESERVE TOM CONNORS 
TREASURY FOR BLINDQUIST 
COMMERCE FOR KMANN 
 
SIPDIS 
 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV ECIN PGOV PREL CI
 
SUBJECT:  CHILE:  BIWEEKLY ECONOMIC HIGHLIGHTS 
 
REFS:  SANTIAGO 161 AND PREVIOUS 
 
¶1.  SUMMARY:  This continues a series of updates on major 
developments in Chile's economy since the acceleration of global 
financial turmoil.  President Bachelet said publicly that Chile's 
economic growth will slow in 2009, but remain positive.  Chile's 
economy contracted by 1.4%.  The unemployment rate rose to 8%. 
Inflation fell to 5.5%.  The Ministry of Finance announced it will 
withdraw $4 billion from a sovereign wealth fund to pay for the GOC 
stimulus package.  Chile's forestry sector is well placed to survive 
the downturn in 2009.  By March 6, copper prices made significant 
gains, the Peso rose against the Dollar, and the stock market closed 
lower.  END SUMMARY. 
 
Bachelet Sees Slowdown 
---------------------- 
 
¶2.  On March 2, President Bachelet said publicly she expects Chile's 
economy to grow in 2009 but "at a slower pace."  She stressed the 
first quarter would be the most difficult, but the GOC was 
maintaining its prediction that GDP would grow between 2-3% this 
year. 
 
Economic Activity Falls 
----------------------- 
 
¶3.  On February 27, INE reported industrial production fell 8.9% in 
January, compared with the same month the year before.  This was the 
fourth straight drop in industrial production and greater than 
expected.  Experts credited the decrease to a fall in internal 
demand and production in mining and construction. 
 
¶4.  On March 5, the Central Bank reported the Chilean economy 
contracted by 1.4% in February 2009, compared with the year before. 
The Central Bank's monthly economic activity indicator (Imacec) was 
at its lowest since January 1999 (during the Asian Financial 
Crisis).  The contraction was expected and blamed on the drop in 
industrial production. 
 
Unemployment Rate Rises 
----------------------- 
 
¶5.  The INE reported February 27, that the unemployment rate climbed 
to 8% during November 2008 - January 2009 (from 7.5% during October 
- December 2008).  Unemployment was higher than expected, and 
exceeded the rate of 7.2% for the same period last year. 
Unemployment surpassed 10% in 12 cities and reached 8.4% in 
Santiago.  INE also reported Chile's juvenile (ages 15 - 24) 
unemployment reached 19% in the last quarter of 2008, more than 
double the national rate.  The Director of the National Youth 
Institute (Injuv) predicted juvenile unemployment will be over 20% 
in 2009. 
 
Inflation Shows Another Small Drop 
---------------------------------- 
 
¶6.  On March 4, the National Statistics Institute (INE) reported the 
Consumer Price Index decreased in February by 0.4% compared with 
January.  This was fourth consecutive month of negative inflation 
and the biggest February contraction in 17 years.  The CPI grew at 
an annualized rate of 5.5%.  The fall in inflation was credited to 
falling prices in diverse goods and services, as well as food and 
beverages. 
 
Finance Ministry Implements Stimulus Package 
-------------------------------------------- 
 
¶7.  On February 23, the Ministry of Finance announced it will 
withdraw $4 billion from one of Chile's sovereign wealth funds (the 
Economic and Social Stabilization Fund) to pay for the GOC's 
economic stimulus package.  This would leave approximately $16 
billion in the fund.  The Ministry will exchange $3 billion for 
Chilean pesos to be used in counter-cyclical domestic spending and 
investments.  The remaining $1 billion will be kept in dollars and 
used to recapitalize Chile's state-owned copper company, CODELCO. 
The Central Bank will initiate a program of daily, dollar sales in 
blocks of $50 million to acquire the pesos.  The Ministry of Finance 
ruled out any long term effect on the exchange rate from the dollar 
sales. 
 
¶8.  On March 2, the GOC began one-time payments of 40,000 Chilean 
Pesos (about $65) to approximately 1.7 million Chilean families. 
The payments are designed to counteract the effects of the financial 
crisis and are made for each child in every family making less than 
about $700/month.   The Ministry of Finance reassured the public 
that the stimulus package will not increase the projected government 
deficit (2.9% of GDP). 
 
Forestry Industry Well-Placed For Crisis 
---------------------------------------- 
 
¶9.  A recent report from the risk rating agency Feller-Rate stated 
that Chile's forestry industry has the lowest costs and best 
potential for tree growth among competing countries.  This will 
assure that the country's industry is well-placed for the effects of 
the global financial crisis in 2009.  Wood products are one of 
Chile's leading exports.  However, the Chilean Wood Corporation 
(Corma) predicts Chile's wood exports will fall approximately 17% in 
2009 from the $5.4 billion exported in 2008. 
 
Copper Prices Climb Back Up 
--------------------------- 
 
¶10.  On the London Metals Exchange, copper closed up at 
approximately $1.68/pound on March 6, rising almost 18% from its 
close on February 20.  The price of copper is up almost 25% since 
the start of the year.  Experts credit the rise to decreasing copper 
stocks and a weak dollar.  CODELCO announced its excess surplus fell 
more than 40% in 2008.  The state-owned copper company produced 1.47 
billion tons in 2008(a 7% decrease from 2007).  Chile's copper 
exports fell for the seventh straight month in January. 
 
Chilean Peso Rises/Falls Against Dollar 
--------------------------------------- 
 
¶11.  On March 6, the observed exchange rate closed at approximately 
605 Chilean Pesos to 1 U.S. Dollar (an appreciation of about 2% from 
the close on February 20). 
 
Stock Market Closes Lower 
------------------------- 
 
¶12.  The IPSA closed at 2361.89 on March 6, down almost 9% on the 
close of February 20. 
SIMONS