CHILE: BIWEEKLY ECONOMIC HIGHLIGHTS

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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
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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
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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
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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
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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
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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
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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
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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
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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
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12. The IPSA closed at 2361.89 on March 6, down almost 9% on the
close of February 20.
SIMONS