Cablegate: Chile: Economic Highlights Week of October 27

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TAGS: ECON EFIN ETRD EINV ECIN PGOV PREL CI

SUBJECT: CHILE: ECONOMIC HIGHLIGHTS WEEK OF OCTOBER 27

REFS: SANTIAGO 960 AND PREVIOUS

1. (SBU) SUMMARY: This continues a series of regular updates on
major developments in Chile's economy since the acceleration of
global financial turmoil. October 31 is a national holiday and
Chilean markets will be closed. By week's end, October 30, there
was a recovery in copper prices, continued depreciation in the
exchange rate, and some gains in the stock market. September saw a
small drop in unemployment and a small increase in industrial
production. The Chilean real estate market slowed significantly.
The GOC revised upward its projected fiscal surplus. The Finance
Minister called for increased regional trade liberalization.
Ambassador Simons met with the current and former Central Bank
governors, who were optimistic about Chile's economic health. END
SUMMARY.

Copper Prices Regain Lost Ground
--------------------------------

2. (U) Copper prices appeared to stabilize during the week. Copper
closed on the London Metals Exchange at about $2.04/pound on October
30, a gain of almost 21% from its close on October 24. CODELCO
(Chile's state-owned copper company) said it would cut production at
its largest mine by 10 percent by the end of 2008.

Chilean Peso Depreciates Further Against U.S. Dollar
--------------------------------------------- -------

3. (U) The exchange rate closed lower on October 30 at 676.5 Chilean
Pesos to 1 U.S. Dollar (a decrease of less than 1% since its close
on October 24). The currency depreciated over 124 Pesos against the
Dollar in the month of October (or approximately 22%).

An Up Week For The Stock Market
-------------------------------

4. (U) The IPSA closed at 2489.59 points on October 30, gaining
about 6% on the close of October 24. The Index was down almost 10%
for the month of October.

Small Decrease In Unemployment For September 2008
--------------------------------------------- ----

5. (U) The national statistics agency (INE) reported the
unemployment rate fell to 7.8% for July-September 2008, although it
is higher (by 0.1%) than the same period a year ago. The rate in
the previous trimester (June-August 2008) was 8.2%.

Uptick In Index of Industrial Production
----------------------------------------

6. (U) INE also reported a small increase of 3.2% in its industrial
production index for September. The index showed an increase of
1.4% for the first nine months of 2008 when compared with the same
period in 2007.

Real Estate Sales Slow Dramatically
-----------------------------------

7. (U) Press reports indicate real estate sales have shown a marked
deceleration in Chile. During the third quarter of 2008, sales
dropped almost 21% in the Santiago area, compared to the same period
in 2007. Outside of Santiago, sales decreased 28%. The Chilean
Chamber of Construction estimates that real estate sales will fall
more than 12% in 2008 when compared with their level in 2007. The
Chamber claimed potential homeowners were postponing decisions to
buy because of inflation.

Government Surplus More Than Expected
-------------------------------------

8. (U) The GOC budget director, Alberto Arenas, said October 30 that
the budget surplus had reached 5.1% of GDP in the first 9 months of
2008. This figure caused the GOC to revise upward (by 0.2%) its
earlier budget surplus predictions for the year to 6.9% of GDP
($11.8 billion). Arenas confirmed, however, that government revenue
fell almost 12% in real terms in the third quarter of 2008. Chile's
two sovereign wealth funds accumulated a value of $21.65 billion in
September, which brought the funds rate of return to 3.5% for the
first 9 months of the year (a significant decrease from the 8%

reported in the first quarter of 2008).

Ministers: Region Needs Assistance, Liberalization
--------------------------------------------- ------

9. (U) On October 27, MERCOSUR countries met in Brasilia to discuss
how to coordinate policy in reaction to the global financial crisis.
Chilean Foreign Minister Alejandro Foxley (a former finance
minister under President Aylwin) called for the Inter-American
Development Bank and the Andean Development Corporation to assist
countries in the region in combating the "negative social impact" of
the crisis. Finance Minister Andres Velasco said two critical
issues were confronting MERCOSUR: 1) countries in the region needed
to ensure liquidity in their domestic markets, and 2) these nations
also needed to forge ahead with progress on trade liberalization and
integration, avoiding a return to protectionist measures.

Ambassador Meets Central Bank Chiefs
------------------------------------

10. (SBU) Ambassador Simons has been engaging with Chilean economic
authorities and experts to assess the impact of the international
financial turmoil in Chile. He met with current Central Bank
Governor Jose De Gregorio, October 29, and former Central Bank
Governor (under President Lagos), and respected economist, Vittorio
Corbo, October 30. Both De Gregorio and Corbo were optimistic that
Chile's economy was well-placed to weather the current crisis. De
Gregorio was more sanguine about the effects on the real economy
(projecting growth of around 4% in 2009) than Corbo who expected a
significant impact on unemployment (10-11% in 2009) and growth (1-3%
in 2009). Further details will be reported septels.
SIMONS

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