VZCZCXYZ0005
OO RUEHWEB

DE RUEHSG #0648/01 1941421
ZNR UUUUU ZZH
O 131421Z JUL 09
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5201
INFO RUEHQT/AMEMBASSY QUITO 2486
RUCNMER/MERCOSUR COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEKJCS/SECDEF WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SANTIAGO 000648 
 
STATE PLEASE PASS TO USTR KATE KALUTKIEWICZ 
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:  ECONOMIC HIGHLIGHTS JUNE 6 - JULY 10 
 
REFS:  SANTIAGO 533 AND PREVIOUS 
 
¶1.  SUMMARY:  Chile's economy contracted for the seventh straight 
month by 4.4%, the Central Bank reported July 3.  The Finance 
Minister claimed Chile's economy has stabilized, but a noted 
economist associated with the opposition disagreed.  The 
unemployment rate increased for the sixth period in a row to 10.2%. 
Despite a small uptick in the Consumer Price Index, annual inflation 
continued to fall to 1.9%.  Chile's Central Bank cut the key 
interest rate to 0.5% and adopted measures to improve liquidity in 
financial markets and access to credit.  By July 10, copper prices 
closed lower than 2009 highs seen in June, the Peso rose against the 
Dollar, and the stock market lost ground.  END SUMMARY. 
 
Seventh Month of Economic Contraction 
------------------------------------- 
 
¶2.  The Central Bank reported July 6 that the monthly economic 
activity indicator (Imacec) contracted by 4.4% in May 2009 compared 
with the same month in 2008.  This is the seventh straight decrease. 
 The reduction in the Imacec follows a fall of 4.6% in April 2009. 
The Imacec is regarded as a proxy for GDP growth in Chile, as it 
includes 90% of the same goods and services used to calculate GDP. 
Industrial and trade activity were hardest hit, especially the 
seafood and forestry sectors.  The Central Bank's survey of economic 
expectations from key experts and analysts in Chile (released July 
9) found that the majority now expect the economy to shrink by 1.5% 
in 2009. 
 
¶3.  Finance Minister Andres Velasco told the press that Chile had 
passed through the worst of the economic downturn and its economy 
had stabilized.  However, noted economist and current advisor to 
opposition presidential candidate Sebastian Pinera, Juan Andres 
Fontaine, said in a press interview that it was unlikely Chile's 
economy would recover in the second quarter of 2009, as many have 
predicted.  Fontaine believed May's Imacec showed the GOC's efforts 
at economic stimulus were not bearing fruit. 
 
Unemployment Rises For Sixth Period In A Row 
-------------------------------------------- 
 
¶4.  The National Statistics Institute (INE) reported June 30 that 
the national unemployment rate climbed to 10.2% during March - May 
2009 (from 9.8% during February - April 2009).  This is the sixth 
straight increase in the national unemployment rate, which hit 
double-digits for the first time (long-expected by most experts). 
Unemployment increased in 9 of Chile's 15 regions, hit double digits 
in 18 of Chile's 33 largest cities (reaching almost 17% in the key 
port city of Valparaiso), and rose to 10.2% in the greater Santiago 
area. 
 
Inflation Shows Small Uptick 
---------------------------- 
 
¶5.  On July 7, the INE reported the Consumer Price Index increased 
in June by 0.3% compared with May.  This marked a departure from 
recent months of negative inflation, but was not enough to break the 
fall in the CPI's annualized growth rate to 1.9%.  The CPI is 
currently at 0.8% since the start of 2009.  The slight uptick in 
inflation was blamed on rising prices in transport and utilities. 
 
Seventh Consecutive Interest Rate Cut 
------------------------------------- 
 
¶6.  On July 9, the Central Bank cut the key interest rate (monetary 
policy rate) by 25 basis points bringing it to its minimum of 0.5%. 
The Bank announced this rate would remain in effect for a 
"prolonged" period of time, possibly 6 months.  Since the beginning 
of the year, when the monetary policy rate was at 8.25%, the Central 
Bank has reduced the rate seven months in a row, by a total of 775 
basis points. 
 
¶7.  The Central Bank announced additional measures designed to 
improve liquidity in the financial system and promote access to 
capital for consumers and businesses.  The Bank will: 
--Establish a short-term Liquidity Facility through which banks can 
borrow needed capital for 90 or 180 days at the current monetary 
policy rate. 
--Adjust the Bank's plan for the sale of its debt instruments (i.e., 
bonds) valid for less than a year, so as to reinforce the short-term 
Liquidity Facility. 
--Suspend the sale of new Bank debt instruments valid for a year or 
more for the rest of 2009 (e.g., Central Bank Two-Year bonds, and 
Central Bank Discount One-Year Bonds) 
 
Copper Prices Close Lower Than June's Highs 
------------------------------------------- 
 
¶8.  On the London Metals Exchange, copper closed at approximately 
$2.19/pound on July 10 (a 4% decrease compared to the close of 
$2.29/pound on June 5, and down from 2009 highs in June). 
 
Chilean Peso Rises Against Dollar 
--------------------------------- 
 
¶9.  On July 10, the observed exchange rate closed at approximately 
552 Chilean Pesos to 1 U.S. Dollar (an appreciation of about 2.5% 
from the close on June 5).  The GOC has recently had to sell assets 
held in U.S. Dollars from its Sovereign Wealth Funds to help finance 
the economic stimulus package. 
 
Stock Market Loses Ground 
------------------------- 
 
¶10.  The IPSA closed at 3061.77 on July 10, down almost 5% on the 
close of June 5. 
URBAN