Cablegate: Chile: Economic Highlights Week of December 1

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FM AMEMBASSY SANTIAGO
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TAGS: ECON EFIN ETRD EINV ECIN PGOV PREL CI

SUBJECT: CHILE: ECONOMIC HIGHLIGHTS WEEK OF DECEMBER 1

REFS: SANTIAGO 1044 AND PREVIOUS

1. 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, December 5, copper prices hit a
four-year low, the peso fell against the dollar, and the stock
market was down. The indicator of monthly economic activity fell to
2.7% in October. Inflation fell to 8.9% in November (higher than
expected). Lending to consumers fell in October. The Economist
predicts investment in Chile in 2009 will fall for the first time
since 1997. Private banks received loan guarantees for small- and
medium-size enterprises. The GOC halted its Sovereign Wealth Fund
investment diversification plan. END SUMMARY.

Copper Prices Hit Lowest Point In Four Years
---------------------------------------------

2. On the London Metals Exchange, copper closed at $1.38/pound on
December 5, down almost 15% from its close on November 28
($1.62/pound). The day's price was the lowest in four years.

Chilean Peso Loses Ground Against Dollar
----------------------------------------

3. On December 5, the exchange rate closed at 674.6 Chilean Pesos to
1 U.S. Dollar (a depreciation of 2% from the close on November 28).

Stock Market Closes Down For The Week
-------------------------------------

4. The IPSA closed at 2306.26 points on December 5, down almost 4%
on the close of November 28.

Economic Activity Slows In October
----------------------------------

5. The Central Bank released key economic indicators December 4,
which show the Chilean economy slowed in October. The indicator of
monthly economic activity (Imacec) grew by only 2.7%, when compared
with October 2007. This is also a decrease when compared with
activity in September 2008 (5.6%).

Inflation Falls In November
---------------------------

6. According to the Central Bank's December 4 report, the Consumer
Price Index decreased in November to 8.9% (from 9.9% in October) a
drop of 0.1%. The decrease was less than expected and due almost
entirely to a fall in fuel prices, which dropped by 14.5% in
November.

Decrease In Lending To Consumers In October
-------------------------------------------

7. According to Chile's Association of Banks (Abif), lending to
consumers fell by 0.98% in October. The Association estimates
consumer lending will remain flat during 2008. Home loans,
commercial loans, and external loans increased in October and the
Association estimates the three areas will grow by 10% in 2008.

The Economist Projects Fall In Investment
-----------------------------------------

8. During the week, the Economist Intelligence Unit published an
analysis of the Chilean economy, which predicts the economy will
grow by only 1% in 2009. Investment is also forecast to fall by
5.5% in Chile, for the first time since 1997.

Banks Receive Loan Guarantees for SMEs
--------------------------------------

9. During the last week of November, Chile's state-sponsored loan
guarantee agency (Fogape) auctioned approximately $93 million in
loan guarantees for small- to medium-size enterprises (SMEs). 18
private banks participated in the auction, which is designed to
boost lending to SMEs. Small- and medium-size enterprises have been
disproportionately impacted by the global financial turmoil.

Halt In Sovereign Wealth Fund Diversification
--------------------------------------------- -

10. During its November meeting, the Financing Committee for Chile's
two Sovereign Wealth Funds (SWFs) recommended against proceeding
with a plan to diversify 35% of the Funds' investments. The
Committee cited concerns stemming from the global financial crisis.
Currently, the SWFs are held mainly in sovereign bonds and money
market funds. The GOC had planned to diversify into riskier
investments. The SWFs are valued at approximately $21 billion (as
of October 31). According to the Committee, none of the Funds'
investments have been exposed to institutions suffering from
liquidity or solvency issues.
URBAN

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