Cablegate: Chile: Economic Highlights for December 8-19

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UNCLAS SANTIAGO 001127

STATE PLEASE PASS TO USTR KATE DUCKWORTH
STATE PLEASE PASS TO FEDERAL RESERVE TOM CONNORS
TREASURY FOR SSENICH
COMMERCE FOR KMANN

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E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV ECIN PGOV PREL CI

SUBJECT: CHILE: ECONOMIC HIGHLIGHTS FOR DECEMBER 8-19

REFS: SANTIAGO 1065 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 December 8 and 19, copper prices hit a
new four-year low, the peso rose modestly against the dollar, and
the stock market was up slightly. Copper exports were lower in
November. Chile's state-owned copper company reported higher costs
and lower copper production in the first three quarters of 2008. A
major U.S. company plans to suspend operations in Chile. The
Central Bank decided to maintain interest rates at 8.25%. The Bank
also extended its program to maintain current levels of liquidity in
the financial sector. Gasoline prices hit new lows. The GOC
released key trade data. END SUMMARY.

Copper Prices Hit New Four Year Low
-----------------------------------

2. On the London Metals Exchange, copper closed at $1.28/pound on
December 19, down more than 7% from its close on December 5. The
day's price was the lowest in more than four years.

3. The value of Chile's copper exports fell by approximately 31% in
November 2008 compared to the year before to $1.98 billion. Chile's
state-owned copper company, CODELCO, reported a fall in copper
production in the period January - September of almost 8% as
compared with the same period last year. CODELCO's average costs
for the first three quarters of 2008 rose to $1.81/pound vs.
$1.35/pound for the same period in 2007. CODELCO projects that if
copper's average price in 2009 is $1.65, the company will break even
on its revenue vs. costs. CODELCO issued a call to all its
employees and contractors to increase productivity and reduce
costs.

Chilean Peso Gains Ground Against Dollar
----------------------------------------

4. On December 19, the exchange rate closed at 636 Chilean Pesos to
1 U.S. Dollar (an appreciation of almost 6% from the close on
December 5). Approaching the end of 2008, the Chilean peso has lost
almost 22% against the dollar so far.

Stock Market Closes Up Slightly
-------------------------------

5. The IPSA closed at 2346.46 points on December 19, up almost 2% on
the close of December 5.

U.S. Company Suspends Chilean Subsidiary
----------------------------------------

6. Ryder System Inc. (based in Miami) is a truck rental and
logistics company. The enterprise announced December 18 it will
suspend operations in Argentina, Brazil, and Chile, as a result of
the global economic downturn. The suspension will result in a loss
of 3,100 jobs and a net savings of some $36 million. This is one of
the first major U.S. shutdowns in Chile.

Central Bank Maintains Current Interest Rate
--------------------------------------------

7. On December 11, the Central Bank decided to maintain the interest
rate at its current level (8.25%) for the third month in a row. The
move had been anticipated. Despite the drop in headline inflation,
the Bank cited continuing high core-inflation measures as a reason
for keeping the interest rate fixed for another month.

Central Bank Extends Liquidity Program
--------------------------------------

8. The Central Bank announced December 10, it will continue to offer
weekly currency swaps of $500 million for a maximum period of 180
days (up from the previous maximum of 91 days). The swaps were
initially to be offered only during October-December 2008. Since
October, the Bank has offered $5.5 billion in swaps, but banks have
only used $1.5 billion. The Central Bank will also continue
offering weekly repos for 28 and 7 day periods, accepting bank
deposits and Central Bank debt as collateral.

Gasoline Prices Hit New Lows
----------------------------

9. On December 17, gas prices were forecast to fall to their lowest
levels since 2004, reaching 401 Chilean Pesos per liter of 93 octane
gas. This is a decrease of 324 Chilean Pesos per liter since
October alone (or a decrease of almost 45%). Some reports calculate
that with this rapid decrease in prices, the average Chilean
consumer has saved over 500,000 pesos (roughly $790) in gas
purchases during the year.

DIRECON Releases Trade Data
---------------------------

10. In association with the U.S. - Chile Free Trade Commission
meeting December 12, the GOC released key trade data. The figures
were published by the Direccion de Relaciones Economicas
Internacionales (DIRECON), which is technically part of the MFA, but
the equivalent of USTR. Since the signing of the U.S. - Chile FTA,
DIRECON calculates trade between Chile and the U.S. has grown 155%
(valued at $15.2 billion). The U.S. is still Chile's primary
trading partner, accounting for 15.2% of all commerce.

11. Chile's trade with the U.S. increased by 27% between January and
September of 2008, compared with the same period the year before.
Chile's exports during the first three quarters of 2008 were valued
at about $6.5 million, while imports were valued at approximately
$8.7 million. For the first time since 2000, Chile had a trade
deficit with the U.S. in the first three quarters of 2008 ($2.2

million). The U.S. was the primary source of foreign investment in
Chile, accounting for 27% of the total ($16.5 million).
SIMONS

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