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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Dealer who wrote (51503)	5/15/2002 4:05:07 PM
From: Sully-	Respond to of 65232

Argentine crisis hinders Chile's economic growth By Antonio de la Jara VALPARAISO, Chile, May 15 (Reuters) - The Argentine financial crisis will pinch neighbor Chile's economic growth rate this year, the Central Bank said on Wednesday after cutting its main economic forecasts for 2002. Used to annual growth rates of around 7 percent in the 1990s, the economy of the world's No. 1 copper exporter has also slowed because of sluggish consumer demand, the global downturn and lower copper prices. In a presentation to the Senate finance commission in the city of Valparaiso, the Central Bank said Chile's gross domestic product (GDP) grew a lower-than-expected 1.5 percent year-on-year in the first quarter. It forecast the economy would pick up in the second quarter and register GDP growth of 2.3 percent. It pegged annual 2002 growth at 3.0 percent but said it would have been 3.5 percent or higher had it not been for the crippling effects of the currency devaluation and prolonged recession in neighbor Argentina. "This revision of the growth forecast takes into account the effect of the Argentine situation on us, which has meant something in the order of a half a percentage point less in GDP for us," Central Bank Governor Carlos Massad told reporters after his presentation. The main fallout in Chile of Argentina' chronic woes have been a weaker market for its export products, lower revenues from Argentine tourists traveling to Chile and postponed investments and losses by leading Chilean firms with interests on the other side of the Andes. Chilean exports to Argentina represent only 3.2 percent of total exports. But the bank said the magnitude of the drop in exports to the troubled country during the first quarter was "significant," sliding 61.5 percent. Chilean companies have invested $3.197 billion in Argentina, which represents 16.4 percent of total Chilean investment outside its borders. These companies have seen their combined market capitalization shrink by $1.6 billion due solely to the impact of Argentina's January decision to end a decade-old currency peg to the dollar, Massad said. INFLATION DROPPING Inflation, which has steadily declined over the last three years in Chile, will be 2.7 percent this year rather than 3.0 percent as previously predicted, the bank said. The controlled inflation, combined with flagging domestic spending, prompted the bank to try to speed up growth by slashing its benchmark interest rates four times this year. The latest cut last week brought the nominal lending rate to 4.0 percent. Chileans have been reluctant to open up their pocketbooks this year amid high unemployment, which edged up to 8.8 percent in the January-March period. "We observe domestic spending levels that are slower than expected," Massad said. The bank expects a widening of the current account deficit this year to an estimated 2.3 percent of GDP from a previous forecast of 1.0 percent GDP. "This would be due primarily to the impact of the crisis in Argentina on the balance of services and returns on flows from tourism and profits from investments made outside the country," it said. Despite increased export volumes, low prices for the nation's chief exports - copper, woodpulp and fishmeal -- and fewer imports are also hampering the pace of growth, it said. biz.yahoo.com