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DE RUEHSG #0923 2901052
ZNR UUUUU ZZH
O 161052Z OCT 08
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3817
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUEHSO/AMCONSUL SAO PAULO 0788
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEKJCS/SECDEF WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC
UNCLAS SANTIAGO 000923
STATE PLEASE PASS TO USTR KDUCKWORTH/MSULLIVAN
TREASURY FOR SSENICH
COMMERCE FOR KMANN
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV ECIN PGOV PREL CI
SUBJECT: UPDATE ON CHILE'S ECONOMY: OCTOBER 15 MARKETS SLIDE BACK
DOWN
REFS: SANTIAGO 921 AND PREVIOUS
1. (U) SUMMARY: This is another in a series of updates on major
developments in Chile's economy in the face of global financial
turmoil. On October 15 copper prices fell and Chile's state-owned
copper company projected lower profits. There were also decreases
in the exchange rate and the Chilean stock market. The Central Bank
published a poll of Chilean banks showing the majority are
restricting lending due to fear of greater risk. Chile's
Association of Manufacturing Exporters claims it has been lightly
impacted by the current crisis. END SUMMARY.
Copper Prices Close Lower
-------------------------
2. (U) Copper closed at approximately $2.33/pound, a drop of almost
8% on yesterday's price. Press reports indicate Chile's state owned
copper company, CODELCO, is projecting a surplus of $7.4 billion in
2008, a decrease of 12% from 2007. The decrease is due to lower
copper prices and higher production costs for the company, trends
which will mean a significant cut in profits by 2012. CODELCO's
estimate was made before the latest fall in copper prices resulting
from the global financial crisis.
Chilean Peso Down vs. U.S. Dollar
---------------------------------
3. (U) The exchange rate fell, closing at 627 Chilean Pesos to 1
U.S. Dollar (a decrease of about 2.5% on yesterday's rate).
Small Decrease In The Stock Market
----------------------------------
4. (U) The IPSA fell by less than 1% from yesterday's close.
Central Bank Poll Shows Banks Hesitant To Lend
--------------------------------------------- -
5. (U) The Central Bank published a poll of Chilean banks that shows
50% have increased restrictions on consumer loans and 61% have done
the same on mortgages due to fears of greater credit risks resulting
from the global financial crisis. 91% of banks have restricted
lending to large companies, whereas 74% report greater restrictions
on loans to small- to medium-sized firms. According to the poll,
67% of banks reported a fall in the demand for credit.
Smaller Exporters See Little Negative Impact
--------------------------------------------
6. (SBU) Embassy contacts at the Chilean Association of
Manufacturing Exporters (ASEXMA) report their members have been
lightly impacted by the global financial crisis. ASEXMA's members
are mostly small- to medium-sized enterprises who export products
but also maintain a significant presence in domestic markets. Since
the beginning of the crisis ASEXMA's members have successfully
diversified their export markets. They report no problems with
liquidity, no slow down in investment, and they do not have debt
held by foreign institutions. Members do not envision significant
layoffs (nor do they expect to hire many new workers).
7. (SBU) ASEXMA feels well insulated from the effects of tightening
credit among banks because the majority of members deal directly
with importers in foreign countries. ASEXMA is concerned about the
potential for future growth in their sector. Members have been
pushing for longer-term financing programs in Chile (most programs
are focused on short-term lending). As a result of the financial
crisis, most banks are unwilling to take on greater risk, so the
focus will likely remain on the short-term.
SIMONS