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Cablegate: Southern Chile -- Far From Santiago but Doing Just


DE RUEHSG #2194/01 2911854
P 181854Z OCT 06




E.O. 12958: N/A


1. SUMMARY. Southern Chile is booming. With unemployment
rates half the national average or below, the south's busy
cities can appear rundown physically but boast vibrant
economies below the weathered surface. Not all of southern
Chile enjoys the same dynamism and infrastructure, however,
as the island of Chiloe remains isolated and unconnected to
the national economy. In Patagonia, in the extreme south,
regional identity remains strong even as the region opens up
to tourism and business. END SUMMARY.

2. Senior Economic Officer visited the cities of Puerto Montt
and Punta Arenas and Chiloe island October 2-6. He met with
local mayors, tourism and business development officials, as
well as university students and professors. Puerto Montt is
the capital of Chile's Lake District or Region X, about 600
miles south of Santiago and with a population of 1.5 million.
Nearby Chiloe is South America's largest island after Tierra
del Fuego and remains physically and economically
disconnected from the mainland. Punta Arenas in Patagonia is
the capital of Region XII and sits at the tip of Chile and
the continent. It has a population of only 150,000 but
enjoys a strong regional identity and a dynamic economy.

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Puerto Montt -- Back from the Dead

3. Puerto Montt appears at first blush to be what it once was
-- a rundown fishing town. The city, like many others in
southern Chile, was devastated by a 1960 earthquake estimated
at between 9 and 11 on the Richter scale. Lost in the
earthquake and subsequent tsunami was the physical evidence
of the influx of German immigrants who largely settled the
region in the mid-19th century. After the Spanish were
evicted by the indigenous Mapuche indians in November 1599,
it was only through German immigration that southern sections
of Chile around Puerto Montt were re-integrated into Chile in
the mid-19th century. As a result it is still easier to find
someone in Puerto Montt who speaks German rather than English.

4. More recently, the large expansion in commercial fish
farms over the last decade has lead the economic recovery of
the city and region, ending jokes about Puerto Montt being
more appropriately called "Muerto" (dead) Montt. In 2005,
Chile exported nearly USD 1.5 billion in salmon and trout
grown in fish farms in Region X. The city enjoys a good road
connection to the north via the Pan-American Highway (Route 5
in Chile) and despite its distance from Santiago does not
suffer from the sense of isolation that exists in much of
Chile's remote regions in the north. According to Major
Quinteros, a Socialist Party major who has been in office for
six years, the city enjoys an unemployment rate of 4.3
percent, less than half the national average. Given the
employment boom, Quinteros' concerns are how to solidify the
economic gains through social programs emphasizing spending
on education and health. Quinteros pushes enhanced
infrastructure, better services and growing tourism as keys
to continuing the region's economic growth.

Faraway Chiloe

5. Chiloe, South America's second largest island after Tierra
del Fuego, is the Chile that time forgot. It is
characterized by houses on stilts at the water's edge, wooden
churches and small family-owned farms. It is connected to
the mainland, Puerto Montt being the nearest big city at a
two-hour drive, by an efficient ferry system. Plans to build
a bridge across the Chacao canal have not moved forward, and
the latest estimates on construction costs for the 2.6 km
bridge are just under USD 1 billion. With only 150,000
residents and limited economic ties to the mainland, Chiloe
cannot make the economic argument to support the costs of
building the bridge.

6. As opposed to the industrial scale fish farming near
Puerto Montt, in Chiloe nothing is done on a large scale.
Farms are small, exports even to the rest of Chile are
minimal and tourism suffers from a lack of infrastructure.
The island boasts only 2,500 beds in its hotels and
guesthouses; hardly the capacity needed to encourage more
visitors. That being said, the island has extensive national
parks and a cultural mix of Spanish and indigenous influences
no longer found elsewhere in Chile. Curiously, Chiloe was
the site of the last stronghold of the Spanish empire in

South America. Fort San Antonio finally fell to Chilean
forces in January 1826. Cable TV and the Internet have now
invaded Chiloe but the economic potential of 21st Chile
remains as yet unrealized (and maybe unwanted) on Chiloe.

Punta Arenas -- The End of the End

7. Punta Arenas sits on the Straights of Magellan, well aware
of its position balancing on the tip of South America.
Region XII comprises 17 percent of Chile's national territory
but has only 1 percent of the country's population, a mere
154,000 inhabitants. The city of Punta Arenas is well
preserved with historic buildings and none of the sense of
the narrowly-averted decay of Puerto Montt. Punta Arenas is
an active city that is enjoying the economic opening and boom
of southern Chile. It does not have a direct land link with
Chile (all overland travel must pass through Argentina) but
its unemployment level is the lowest in all of Chile at 2.9
percent. There is a sense in Punta Arenas, among the mayor
and civic leaders, that the success the city and region enjoy
is the result of perseverance and hard work. There is no
sense of dependence for resources and attention from Santiago.

8. The city has a diversified economy based on oil, shipping,
tourism and a strong Chilean military presence. The city has
a strong tradition of immigration with a mix of Croatian,
German and English immigrants who have given Punta Arenas
more of an international flavor than many Chilean cities.
Given the natural and unique beauty of Patagonia, Punta
Arenas has found it easy to take advantage of its tourism
potential. About half a million tourists pass through the
city every year, about two thirds of them European, en route
to the national parks that dominate Patagonia. According to
tourism officials in Punta Arenas, just over half of the
region's land mass is national park, which provides tourists,
whether passing through on a cruise ship or spending weeks in
the national parks, a wide variety of sights and activities.

Regional Identity

9. Southern Chile enjoys a strong but not arrogant sense of
identity. In Puerto Montt, the sense is of a city and region
that have found new life in a Chilean economy opening up to
the world. In Chiloe, the identity is fueled by a unique
history further punctuated by physical isolation from the
national economy. In Patagonia, the sense of regionalism and
pride in southern Chile is palpable on the street. Patagonia
has its own regional flag that is displayed throughout Punta
Arenas. Not only do stores display the flag, it flutters in
front of government buildings alongside the Chilean flag, and
even judges fly the flag in the courtrooms.

10. Chile has the reputation of being a Santiago-centric
country. While northern Chile at times resents the sense of
isolation and neglect this might entail (reftel), the south
has a different take. Its identity is born of economic
strength and an eagerness to open up to tourists and the
world economy. Despite sitting at the end of the end of the
world, southern Chile is just beginning to realize its

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