VZCZCXYZ0003
RR RUEHWEB

DE RUEHSG #1074/01 3141915
ZNR UUUUU ZZH
R 101914Z NOV 09
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC 0244
INFO MERCOSUR COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SANTIAGO 001074 
 
SIPDIS 
STATE PLEASE PASS TO USTR KATE KALUTKIEWICZ 
STATE PLEASE PASS TO FEDERAL RESERVE TOM CONNORS 
TREASURY FOR BLINDQUIST 
COMMERCE FOR KMANN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV ECIN CI
SUBJECT: CHILE: MONTHLY ECONOMIC HIGHLIGHTS - SEPTEMBER AND OCTOBER 
 
REF: SANTIAGO 868 AND PREVIOUS 
 
¶1.  SUMMARY:  Despite recent positive signs, Chile's economy is 
still working through the negative effects of its recession. 
Economic activity contracted again in August and September.  The 
unemployment rate in Chile decreased to 10.2% for the first time 
after nine increases in a row.  Although inflation experienced a 
small uptick in September, it remained unchanged in October, and 
the annual rate fell to -1.9%.  Chile's Central Bank maintained the 
key interest rate at 0.5% in October.  Trade numbers were slightly 
lower as was investment.  Government spending increased as did 
Chile's foreign debt.  After ten months of the year, copper prices 
had risen by almost 126%, the Peso had appreciated against the 
Dollar by 16%, and the stock market had increased by 39%.  END 
SUMMARY. 
 
 
 
Economic Activity Contracts 11 Months in a Row 
 
--------------------------------------------- - 
 
 
 
¶2.  The Central Bank reported that the monthly economic activity 
indicator (Imacec) contracted by 0.1% in August and 1.1% in 
September 2009 compared with the same months in 2008.  This makes 
eleven straight months of economic contraction.  Experts had 
believed the Imacec was showing a deceleration in its rate of 
decrease.  The seasonally adjusted Imacec for August 2009 actually 
showed an increase of 0.4% when compared with the month before 
(there was also an increase in July).  However, September's 
seasonally adjusted Imacec decreased by 0.3% when compared with 
August's number.  September's Imacec was unexpected and economists 
now hope October will demonstrate signs of positive growth. 
 
 
 
¶3.  In September, Chile's Industrial Federation (SOFOFA) reported 
that from March through August, industrial output contracted by 
11.7% compared to the same period in 2008.  The Chilean National 
Chamber of Commerce (CNC) reported, however, that retail sales in 
Santiago expanded by 1.6% compared to the same period last year. 
There was a 16% rise in sales of clothing and 3.5% increase in 
footwear.  The CNC anticipates total sales will grow this year 
2%-3%. 
 
 
 
¶4.  Chile's National Car Dealers' Association (ANAC) reported in 
September that July/August sales of new cars rose by 15%.  However, 
over the March-August period sales were still down by 44% compared 
to the same period in 2008.  Also in September, the Chilean Chamber 
of Construction released the monthly indicator of construction 
activity (IMACON).  The IMACON reached its highest level since 
October 2008, but was still well below its peak reached in August 
¶2008. 
 
 
 
Unemployment Finally Falls Slightly 
 
----------------------------------- 
 
 
 
¶5.  The National Statistics Institute (INE) reported that the 
national unemployment rate stayed at 10.8% during June - August 
2009 and fell to 10.2% during July - September 2009.  The last 
trimester marked the first drop in the national unemployment rate 
after nine straight increases.  In the last period, unemployment 
decreased in 10 of Chile's 15 regions, remained in double digits in 
17 of Chile's 33 largest cities (remaining above 14% in 6 of those 
cities, including almost 20% in Coronel), and fell to 10.1% in the 
greater Santiago area. 
 
 
 
Downward Trend in Inflation Ends 
 
-------------------------------- 
 
 
 
¶6.  The INE also reported that the Consumer Price Index increased 
1% in September compared with the preceding month and remained 
unchanged in October.  This marked a departure from the deflation 
of previous months.  The CPI's annualized change fell to -1.9% in 
October.  The CPI has fallen by 0.6% since the start of 2009. 
 
 
 
Interest Rate Maintained at Low Level 
 
------------------------------------- 
 
 
 
¶7.  The Central Bank decided to maintain the key interest rate 
(monetary policy rate) at its minimum of 0.5% in September and 
October.  This was in keeping with a previous announcement by the 
Bank that the rate would remain in effect for a "prolonged" period 
of time, possibly six months.  The Central Bank cut the rate to 
0.5% in July, where it has remained for four straight months, after 
six previous reductions from a rate of 8.25% in December 2008. 
 
 
 
¶8.  According to the Central Bank, credit market conditions have 
improved, but remain tight.  Market interest rates continued to 
drop in the third quarter, while bank spreads also narrowed.  By 
September, the nominal cost of borrowing for up to 90 days was at 
an annual rate of 3.84%, down from 5.88% in June (and 16.44% in 
December 2008).  The cost of loans with a maturity of 90 to 365 
days had dropped to 11.4% down from a peak of 19.56% in January 
¶2009. 
 
 
 
¶9.  On October 30, the Central Bank announced it will withdraw some 
of the non-conventional measures used to expand monetary policy in 
response to the financial crisis. 
 
--The Central Bank will suspend the program of foreign currency 
swaps of up to 180 days.  Weekly foreign currency swaps of up to 90 
days, in the amount of $400 million, will remain active until June 
¶2010. 
 
--Repurchase operations (REPOs) of up to 7 days will not be renewed 
beyond December 2009, while solicitations for 28 days will be 
maintained until June 2010. 
 
 
 
2009 Trade Numbers Still Down 
 
----------------------------- 
 
 
 
¶10.  By September, total Chilean exports were valued at $37.4 
billion, down by 31% compared to the same 9-month period last year. 
While total imports were valued at $28.3 billion, down by 36.7%. 
Chile ran a trade surplus of roughly $9 billion, which was about 
the same as the first 9 months of 2008. 
 
 
 
Government Spending Up in Response to Crisis 
 
-------------------------------------------- 
 
 
 
¶11.  The GOC's fiscal spending climbed by 20.3% over 2009 compared 
to 2008, as a result of counter-cyclical policies designed to 
combat the effects of the international financial crisis.  However, 
spending is projected to rise only 4.3% in 2010.  Government 
revenue has also been hit by the international crisis, down by 
33.1% in the first eight months of the year, compared to the same 
 
period last year.  This is, in part, due to the large drop in state 
copper company Codelco's earnings, which fell by 97.7% during the 
same 8-month period, as compared to 2008.  Tax collection from 
private mining companies also fell by 85.5% during the same 
time-frame. 
 
 
 
¶12.  The GOC forecasts a structural deficit of 0.4% of GDP for 
¶2009.  The Ministry of Finance has announced that it will not 
comply with the structural fiscal rule this year. [Note:  Since 
2001, Chilean law normally mandates a structural budget surplus of 
1% of GDP.  In May 2008 it was temporarily reduced to 0.5%, and 
this year to 0%, as a result of the economic crisis.  End note.] 
 
 
 
Foreign Debt Shows Small Increase 
 
--------------------------------- 
 
 
 
¶13.  Chile's foreign debt reached $66 billion in August, up from 
$64.8 billion at the end of 2008.  As of September, international 
reserves were valued at $26.1 billion, up from $23.5 billion in 
June. 
 
 
 
Investment Down Slightly 
 
------------------------ 
 
 
 
¶14.  During the first eight months of the year, foreign direct 
investment (FDI) was valued at $8.6 billion, down from $10.4 
billion in the same period last year.  Chilean FDI abroad reached 
$4.6 billion, as compared to $4.9 billion in the same period last 
year. 
 
 
 
Copper Prices Keeping Moving Higher 
 
----------------------------------- 
 
 
 
¶15.  On the London Metals Exchange, copper closed at approximately 
$2.98/pound on October 30.  The price of copper was up almost 126% 
since the beginning of 2009. 
 
 
 
Chilean Peso Still Appreciating Against Dollar 
 
--------------------------------------------- - 
 
 
 
¶16.  On October 30, the observed exchange rate closed at 
approximately 532 Chilean Pesos to 1 U.S. Dollar.  This rate marks 
an appreciation of about 16% from the beginning of 2009. 
 
 
 
Stock Market Also Continues Gains 
 
--------------------------------- 
 
 
 
¶17.  The IPSA closed at 3314.45 on October 30.  The IPSA is up 
almost 39% after 10 months of 2009. 
SIMONS