CHILE: ECONOMIC HIGHLIGHTS JANUARY 12-23

UNCLAS SANTIAGO 000081 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: ECONOMIC HIGHLIGHTS JANUARY 12-23 REFS: SANTIAGO 30 AND PREVIOUS ¶1. SUMMARY: This continues a series of updates on major developments in Chile's economy since the acceleration of global financial turmoil. Between January 12 and January 23, copper prices slipped, the Peso remained relatively stable against the Dollar, and there was little movement in the stock market. The Central Bank presented its 2009 Monetary Policy Report to Congress. The Report predicts 2-3% GDP growth and further cuts in interest rates in 2009. The GOC began implementation of its economic stimulus package, including more money for housing to help generate employment. END SUMMARY. Copper Prices Slip -------------- ¶2. On the London Metals Exchange, copper closed at $1.38/pound on January 23, down almost 7% from its close on January 9. On January 22, the president of Chile's private miners association (Sonami) predicted copper prices will average between $1.40/pound and $1.80/pound throughout 2009, due principally to lower demand in China. ¶3. The Central Bank's 2009 Monetary Policy Report (released January 14) forecast decreased government revenues due to lower copper prices. The Report predicted the impact on GDP would likely be limited because of Chile's diversified economy, which relied less on the commodity than in years past. According to press reports, since copper prices began to fall in late 2008, it is estimated the mining sector has eliminated almost 8,000 jobs. Chilean Peso Remains Stable Against Dollar -------------- ¶4. On January 23, the observed exchange rate closed at approximately 621 Chilean Pesos to 1 U.S. Dollar (a slight depreciation of 0.6% from the close on January 9). Little Movement In Stock Market -------------- ¶5. The IPSA closed at 2497.95 on January 23, down 0.2% on the close of January 9. Report Acknowledges Stronger Economic Downturn -------------- - ¶6. Central Bank President Jose De Gregorio presented the 2009 Monetary Policy Report to Congress January 14. In the Report, the Central Bank surprised many experts by maintaining its GDP forecast for 2009 at 2-3% GDP growth. The Bank estimates the GOC's economic stimulus plan will lead to a one percentage point expansion in Chile's GDP growth. ¶7. Many market analysts and economists estimate GDP growth will be significantly lower (0.5%-1.5%) than that projected by the Central Bank. Some analysts read the Central Bank's growth estimate as a public display of support for the Finance Ministry, consistent with improved coordination between the two institutions. ¶8. According to the Bank's estimates, another contribution to growth will come from monetary policy. The Report anticipates further aggressive cuts in interest rates (currently at 7.5%),possibly to 5%-5.5% in a six-month period. ¶9. During his presentation, the President of the Central Bank acknowledged a stronger-than-expected impact on the domestic economy due to drastic movement in the international macroeconomic environment. This situation, combined with deteriorating expectations, resulted in a slowdown in output that was worse than forecast in the Bank's projections in November. ¶10. The Bank expects the costs of the global financial crisis will persist for several quarters. The Report also predicts the slowdown in global demand will take its toll on Chilean exports, which were estimated to grow 1.8% in 2008 and 2.1% in 2009. Both figures would be a significant decrease from the 7.8% growth in exports in 2007. The impact on business and household spending decisions is also likely to be significant. The Report estimates domestic demand will grow by only 0.7% in 2009, compared to 8.5% in 2008. Implementation of the Economic Stimulus Package -------------- -- ¶11. The GOC's $4 billion economic stimulus plan (Ref) received the approval of Congress and President Bachelet signed it into law January 20. During the signing ceremony, Bachelet asked banks and private enterprises to help contribute to the stimulus by making credit more widely available. ¶12. Minister of Housing, Patricia Poblete, announced that the sector under her supervision will generate about 60,000 new jobs through the Special Housing and Urbanism Plan for 2009. The plan will allocate $400 million extra out of the $850 million already approved by the 2009 fiscal budget. This new allocation will allow the distribution of 56,000 additional housing subsidies out of the annual 140,000 already approved. SIMONS