economics

March 16, 2010

Chile Braces for a Major Economic Slowdown

Filed under: Uncategorized — ktetaichinh @ 11:15 pm
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“The harder part will be in small villages and towns along the coast, many of which lost their local economy like the fishermen did, and the lady that owned a mini market, and the guy who owned a campground,” said Rodrigo Jordan, chairman of the Foundation for Overcoming Poverty, a research institute in Santiago, the capital. “They can rebuild their homes and find clothes, but how can they sustain their families without a local economy?”

The quake devastated nearly a third of the fishing industry in the south-central part of the country, where the tremor struck hardest. It destroyed more than 12 percent of the stock of Chile’s wine industry. And it knocked out an important pulp and paper mill in Constitución that could take six months to repair.

Then there were the more subtle effects. The seemingly endless aftershocks — more than 300 by Friday — have kept many on edge, and even stressed out cows, which are producing less milk since the quake, said Marta Lagos, a Santiago economist and pollster.

The two regions affected most by the quake — Maule and Bío Bío — account for 13 percent of Chile’s gross domestic product and nearly 20 percent of its industrial output. Concepción, Chile’s second largest city and an industrial hub, was close to the quake’s epicenter and was extensively damaged.

Chile’s most important industry, copper, was relatively unscathed, as the quake did little to most mines, especially those in the far north of the country. Several ports will need to be repaired, which could slow exports in a variety of goods, although copper is not expected to be affected. The south-central zone damaged by the quake handles more than 20 percent of the cargo in and out of Chile, said Claudio Ortiz, frigate captain of the maritime government of Talcahuano.

“The movement of goods to ships is going to slow down,” said Sebastian Edwards, an economics professor at U.C.L.A. who specializes in Latin America. “Chile is a country that relies heavily on exports, so this is going to be a factor.”

But Dr. Edwards and other economists also contend that Chile could emerge with a stronger economy a year or so after the earthquake than it had before last month. The nation owes much of that rosy prognosis to the fiscal management of the past two moderate leftist governments, which have given the new president, Sebastián Piñera, palatable options for financing reconstruction, which is expected to exceed $30 billion

Former President Michelle Bachelet’s government hewed to a program of automatic savings during the boom years for global commodities, including copper. The program, along with prudent investment of the savings abroad, allowed two sovereign funds to amass more than $14 billion, money that can now be tapped for reconstruction.

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