Milestones: Reconstruction Spending Shores Up Economy

Chile

 

By Antonio Guerrero

 

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Piñera: Hoping to promote economic growth, despite crisis

The massive earthquake and subsequent tsunami that hit Chile in late February caused hundreds of deaths, as well as destroying some 500,000 homes and damaging infrastructure. Yet, as the country’s government continues to assess the overall damage, some analysts say Chile’s reconstruction efforts could bode well for its growth outlook.

 

President Sebastian Piñera, sworn-in just days after the quake, estimates reconstruction will cost $30 billion, while private sector insurance payouts for damages should hit $3.5 billion. Some estimates indicate hospital reconstruction alone could cost $3.6 billion, with roads, bridges and ports requiring another $1.2 billion. Piñera is reworking the 2010 national budget to allow for investments in rebuilding projects. He is also tapping the $11 billion sovereign fund created with recent copper-sector windfall profits.

 

“While we expect a significant hit to growth—and to the recovery already under way—in the first half of the year, extensive reconstruction efforts are likely to bolster economic activity thereafter,” says a Standard & Poor’s report.

 

During his campaign, Piñera said his administration would aim for an average 6% GDP growth. Economy minister Juan Andrés Fontaine predicts this year’s growth will be between 4.5% and 5%. JPMorgan Chase, however, is more bullish and revised its forecast from an initial 5% to 5.5% on account of the reconstruction program. Rebuilding will also help the president meet a campaign promise to create a million jobs during his four-year term, as unemployment remained high, at 9.7%, prior to the earthquake.

 

Markets are responding positively. The Santiago stock exchange, whose IPSA index has gained nearly 7% this year, took a dive immediately after the quake. However, it quickly reversed its losses, as analysts expect reconstruction investments to boost corporate profits and spark economic growth. Chile’s economy may have been momentarily shaken, but its prospects are solid.

 

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