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Cablegate: Update On Chile's Economy: Another Mixed Day for Markets

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DE RUEHSG #0929 2941042
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O 201042Z OCT 08
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3822
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUEHSO/AMCONSUL SAO PAULO 0791
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UNCLAS SANTIAGO 000929

STATE PLEASE PASS TO USTR KDUCKWORTH/MSULLIVAN
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: UPDATE ON CHILE'S ECONOMY: ANOTHER MIXED DAY FOR MARKETS
ON OCTOBER 17

REFS: SANTIAGO 927 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 17 copper prices fell further, the exchange
rate appreciated slightly again, and the stock market moved up as
well. A Chilean private pension fund announced it would suspend
interim dividends until next year. President Bachelet, in a speech
to UNASUR, said the region had to unite to prevent negative impacts
of the financial crisis. Yields on bonds from the Central Bank rose
as inflation expectations decreased. END SUMMARY.

Copper Prices Close Even Lower
------------------------------

2. (U) Copper closed at approximately $2.13/pound, a fall of almost
4% on yesterday's price. This is copper's lowest price since
January 2006.

Chilean Peso Edges Up Again vs. U.S. Dollar
-------------------------------------------

3. (U) The exchange rate closed up again at about 618 Chilean Pesos
to 1 U.S. Dollar (an increase of less than 1% on yesterday's rate).


Small Gain In The Stock Market
------------------------------

4. (U) The IPSA gained about 1.5% on yesterday's close.

Private Pension Fund Suspends Interim Dividends
--------------------------------------------- --

5. (U) Private pension fund Provida announced today it will suspend
all further interim dividends until next year, because of
uncertainty stemming from the global financial crisis. Provida's
earnings have fallen 48% from last year.

Bachelet Says Region Must Avoid Impact of Crisis
--------------------------------------------- ---

6. (U) President Bachelet, in a speech to UNASUR in Bolivia, said
the region should come together to prevent the current crisis from
ruining recent democratic and economic achievements. She also said
the region must demand reform of multilateral institutions.
Bachelet predicted the current financial turbulence would impact the
flow of investment into the region and demand for exports from the
region. This would slow growth in the short term, which she said
was "a tragedy."

Bond Yields Rise As Inflation Expectations Decrease
--------------------------------------------- ------

7. (U) Yields on Central Bank bonds (Bonos del Banco Central de
Chile en Unidades de Fomento - BCU) rose as inflation expectations
among investors decreased. The 5-year bond's yield to maturity rose
from 3.24% to 3.28%. The 7-year bond's yield to maturity rose from
3.18% to 3.24%. The 10-year bond's yield to maturity rose from
3.15% to 3.18%.
SIMONS

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