Brazil & Southern Cone - February 2012 (ISSN 1741-4431)

The last couple of years have not been good for Chile. In fact since President Sebastián Piñera was elected the country has suffered from a major earthquake and Tsunami in 2010; followed in 2011 by seven months of student protests, which paralysed the country and caused sizable material damages. Moreover, at the tail end of 2011, a severe drought in the Southern Cone caused a string of forest fires which consumed large areas of Chile and are still wreaking havoc. As a result of all this, the government has been saddled with substantial reconstruction bills, which affects its capacity to invest in other areas of the economy.

Despite the myriad problems, Chile’s economy has remained resilient. Real GDP growth in 2011 was put at 6.2% (not far off the original 6.4% forecast) and it is expected to grow by 4.2% in 2012. However there is no denying that Chile has been slowing a little, with non-mining economic activity coming off the boil in the last quarter of 2011. While the government might normally address this via an additional investment stimulus for the domestic sector , right now it remains tied up with the pressing reconstruction efforts.

On 8 February the government spokesman, Andrés Chadwick, announced that as of 31 January the government had completed 68% of all the reconstruction projects in the country designed to make up for the US$30bn in damages caused  by the 2010 earthquake. According to Chadwick, the priority household reconstruction efforts have been two-thirds completed, with the delivery of 72,000 homes. Chadwick added that “We have already delivered 222,000 subsidies to those affected”. He said that President Piñera would deliver a full report on 27 February, two years after the 8.8 degree 'quake shook Chile.

Ahead of this year’s municipal elections, the government’s next priority will be to address the estimated CL$5bn (US$10.3m) in damages caused to the country’s municipalities by last year’s student protests. Chile’s academic year is set to start on 5 March and the ministry of education has already pledged that it will make biddable funds available to some of those municipalities that suffered the worst damages, including Santiago (CL$ 1.5bn) and Concepción (CL$ 1.2bn). However, there are limits on the level of funding and individual institutions will only be allowed access to CL$ 50m, although some schools have estimated damages in excess of CL$400m. As a result, many city governments are sceptical about their ability to carry out all the repairs. A general manager of Valparaíso’s city corporation, Gustavo Mortara, who claims that the city faces a bill for CL$800m in damages, declared that “Classes will resume like this, because the corporation is broke and the ministry won’t give us a single peso”.

The government is still dealing with the forest fires that are still raging in large parts of Southern Chile. Although there is no official estimate yet of the damages caused by the fires, Chile’s national forestry corporation, Conaf, says that the fires have been the worst in 25 years, with 72,000 hectares (ha) burned to date. Herbert Haltenhoff, Conaf’s head of forest fire prevention, explained on 9 February that as result the Conaf may extend its fire prevention season from April until the end of May. According to Haltenhoff, this implies an increase in spending of approximately US$4.8m. Haltenhoff also noted that “We have detected that this is cyclical, with very tough years such as 1972, 1987, 1988-1989… and again in 1998-1999. And things have been fairly quiet until now”.

Despite all this, the Chilean economy managed to post a 13.5% increase in exports in 2011 to US$80.5bn, on the back of mining. As a result, even though imports rose 25.9% to US$69.96bn, the country still posted a US$10.6bn trade surplus. Moreover, Chile’s central bank has signalled its confidence in the domestic economy’s ability to recover and at its latest monetary policy meeting on 13 February opted to leave the benchmark interest rate steady at 5%, after a 25 percentage point cut the previous month, on concerns of a slowdown.

• Record salmon exports

On 15 February Chile’s customs authorities reported that salmon exports, which were badly hit in 2008 following the Infectious Salmon Anaemia (ISA) virus outbreak, had reached a new historic high of U$2.91bn, a 48% year-on-year increase. In fact, the figure is larger than that registered in 2007 (US$2.2bn) the year before the ISA outbreak. Sector analysts say that the future for the industry is bright and they believe that production levels in 2012 will be higher, with a “significant increase” in sales.