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Cablegate: Chile: Economic Highlights Week of November 24

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

SUBJECT: CHILE: ECONOMIC HIGHLIGHTS WEEK OF NOVEMBER 24

REFS: SANTIAGO 1024 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. By week's end, November 28, copper prices
hit a three-year low and the exchange rate and stock market
recovered some lost ground. Chile's state copper commission
forecast a sharp price drop in 2009. The Chilean economy grew 4.8%
in the third quarter, but the OECD cut its prediction for Chile's
growth to 2.6% in 2009. Industrial production and the unemployment
rate fell in October. The GOC will spend $120 million on a rescue
package for the salmon industry. The Central Bank provided another
$200 million in liquidity. Contacts at CorpBanca report a
relatively healthy banking industry. END SUMMARY.

Copper Prices Hit Lowest Point in Three Years
---------------------------------------------

2. (U) On the London Metals Exchange, copper closed at $1.32/pound
on November 28, down almost 16% from its close on November 21. The
average copper price in November, $1.66/pound, is the lowest in
three years.

3. (U) Chile's state copper commission (Cochilco) forecast a sharp
drop in copper prices for 2009. Next year's average price for
copper is expected to be $1.60/pound (down significantly from the
previous forecast of $3.40/pound). A decrease in demand and
increasing copper stocks are the two principal causes for the drop.
Cochilco predicts Chile will produce 5.57 million tons of copper in
2009 (less than the 5.8 million previously forecast).

Chilean Peso Recovers Slightly Against Dollar
---------------------------------------------

4. (U) On November 28, the exchange rate closed up at 660.5 Chilean
Pesos to 1 U.S. Dollar (an appreciation of 3% from the close on
November 21). However, the Peso has depreciated 24.7% for the year
so far.

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

5. (U) The IPSA closed at 2407.75 points on November 28, up almost
2% on the close of November 21. The index lost 3.28% of its value
during the month of November.

Growth in 3rd Quarter, OECD Sees Slower 2009
--------------------------------------------

6. (U) On November 24, the Central Bank reported Chile's GDP grew by
4.8% in the third quarter (July-September). This growth was led by
an expansion in utilities, construction, and the communications
industry. Internal demand rose to 11.5%. The Bank revised upward
second quarter growth from 4.3% to 4.5%. Meanwhile, the OECD
revised downward many of its growth forecasts for various economies,
including Chile's. In 2009, the Chilean economy is now expected to
grow by only 2.6% (as opposed to the 3.9% originally predicted).

Industrial Output Falls
-----------------------

7. (U) According to Chile's National Institute of Statistics (INE),
the index for national industrial production fell 0.8% in October,
despite expectations for 1.2% growth in that month. The drop was
blamed on decreases in the production of copper, other metals, and
chemicals.

Unemployment Decreases
----------------------

8. (U) The INE also reported the unemployment rate decreased to 7.5%
for August-October 2008. This is lower (by two percentage points)
than the same period in 2007. The rate in the previous trimester
(July-September 2008) was 7.8%. This is the third consecutive
trimester in which the unemployment rate has fallen. For the first
time this year in Chile, employment grew at a faster rate than the
workforce.

Rescue Package for Chilean Salmon Industry
------------------------------------------

9. (U) On November 27, President Bachelet announced a $120 million
rescue package for the salmon industry. The industry has been hit
hard by reduced demand resulting from the global financial crisis
and continuing problems stemming from a virus attacking the salmon.
The package will be applied mostly in loan guarantees to banks that
lend to salmon producers from Chile's Economic Development Agency
(Corfo).

Central Bank Injects More Liquidity
-----------------------------------

10. (U) On November 25, the Central Bank provided another currency
swap to maintain liquidity levels in the banking sector. The Bank
offered $500 million for 91 days. Banks opted to borrow only $200
million at LIBOR + 120 basis points.

Banking Sector Remains Relatively Healthy
-----------------------------------------

11. (SBU) Embassy contacts at CorpBanca report the banking sector
remains relatively healthy. CorpBanca confirmed several pieces of
information the Embassy has heard from other sources in the
industry: liquidity continues to be adequate thanks to ongoing
Central Bank currency swaps, few international lines of credit have
been cut, the sector has very little exposure to foreign-held debt,
the industry remains well-regulated. CorpBanca added that banks are
starting to see a significant deterioration in loan repayments,
especially among lower income customers, as a result of the global
economic turmoil.
SIMONS

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