×

Chile FinMin sees 2010 GDP growth dipping on quake

SANTIAGO, March 21 (Reuters) - Chile's new finance minister sees economic growth dipping below 5 percent in 2010, a slight downward revision from a previous forecast for slightly above 5 percent, according to an interview published on Sunday. Finance Minister Felipe Larrain also said in an interview with newspaper El Mercurio he had not closed the door on the possibility of privatizing non-vital state assets to help fund reconstruction after the 8.8-magnitude earthquake on Feb. 27 that killed hundreds and caused an estimated $30 billion in damage. "If before we could expect (GDP growth of) between 5 and 5.5 percent, today we are expecting less than that," Larrain said, adding the government however maintained its target of average annual growth of 6 percent during conservative President Sebastian Pinera's term. Eight days before the quake, Larrain had told Reuters he expected economic growth a bit above 5 percent this year. Chile's GDP growth turned positive in the fourth quarter of 2009 after three quarters of contraction. The turnaround came just before the world's fifth-largest recorded earthquake since 1900 struck, mangling cities in south-central Chile and triggering deadly tsunamis. Larrain reiterated the government would not seek to privatize state copper giant Codelco, the world's top producer of the red metal, but said he may consider selling other assets. "I am not going to close the door on the idea of privatization," he said.

"We can turn to selling some non-vital state assets." The quake hit in the final days of the center-left presidency of Michelle Bachelet and 12 days before billionaire Piniera was sworn in, ending 20 years of leftist rule. The government estimated damage at $30 billion, including lost productivity, and expects more than half of that to be paid for by the private sector, Larrain said. The government expects to raise more than $700 million for its reconstruction fund by cutting government spending on goods and services 5 percent across the board, Larrain told El Mercurio. Larrain told a conference on Friday the government would cautiously tap a variety of financing sources including sovereign wealth fund savings and government cash currently budgeted elsewhere. He has also suggested the government may try to limit the size of any foreign bond issuance to protect the peso currency and help the recovery of devastated fishing, forestry and agricultural exporters. Chile holds nearly $12 billion in a sovereign wealth fund created out of windfall copper boom savings. "If you ask me if we are going to use resources from the fund, (I would say) very probably yes, but preserving the exchange rate," he told El Mercurio. Larrain said individuals and small businesses would be sheltered from any eventual tax increase, and the government was still studying whether it would make changes to royalties on the linchpin mining sector. He also expressed a preference for raising debt on the local market while also trying to prevent interest rates from rising. Larrain did not say how Chile planned to do that, or how it would repatriate sovereign wealth fund dollars without peso appreciation, but favored coordination with Chile's traditionally very independent central bank. "One respects the autonomy of the Central Bank, but I believe it is important to coordinate policies," he said. (Reporting by Daniel Trotta; Editing by Simon Gardner and Maureen Bavdek) Keywords: QUAKE CHILE/ECONOMY (daniel.trotta@thomsonreuters.com; +569-9138-1047) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.

string(45) "Unable to read response, or response is empty"