March 13 (Bloomberg) -- Chilean President Sebastian Pinera plans to tap copper savings funds and may borrow abroad to pay for the estimated $30 billion cost of repairing damage caused by the 8.8-magnitude earthquake that struck the country Feb. 27.
More than 500 Chileans died in the quake and the tsunami that followed it, Pinera said yesterday. That death toll will probably rise as more bodies are identified and because of the “many people” still missing, he said.
The country has been left poorer by the earthquake, he said, citing damage done to homes, schools, hospitals and infrastructure. Last month’s quake, the world’s fifth biggest in the past century, was a “calamity” for Chile, Pinera said.
“Chile is poorer than a few weeks ago,” Pinera told reporters in Santiago yesterday. “We’re poorer for the loss of life, we’re poorer for the loss of economic wealth.”
Pinera said he plans to rewrite the 2010 budget to free up resources for a reconstruction fund, adding the government will also tap its savings. Chile has $11.3 billion invested overseas in an economic stabilization fund that the government can use to finance a budget deficit. Using money from the fund could mean selling dollars to buy pesos, boosting the Chilean currency.
“We will study the possibility of contracting debts overseas,” Pinera said. “Chile has hardly any public sector debt.”
Chile, South America’s fifth-largest economy with gross domestic product of $169 billion, is a net creditor, with more in its offshore savings funds than it owes. The country has $1.75 billion of international bonds outstanding, all due before the end of 2013, according to data compiled by Bloomberg.
Loan Offers
Multilateral lenders such as the World Bank, the Inter- American Development Bank and Caracas-based Corporacion Andina de Fomento have offered to lend Chile money, Finance Minister Felipe Larrain said.
“The options are there, but before that we have to look at the numbers and see how much we’ll need in financing,” Larrain said. “We’re still working on the budget and analyzing the different items in the budget to see how to allocate resources to reconstruction.”
Chile’s government will spend $300 million on cash handouts to the poor, Larrain said. Pinera signed the bill authorizing the payments in his first legislative act as president, and it will be sent to Congress on March 15, Larrain said.
The government hopes to make the first payments this month, the finance minister said.
The high price of Chile’s main export, copper, may also help pay for reconstruction, the president said.
Years of Rebuilding
Rebuilding “won’t last weeks or months,” Pinera said. “It will last years, because the magnitude of the damage caused is on a scale never before seen in Chile,”
Chile’s new government will need to weigh the advantages of borrowing in dollars, which may push up the peso, and borrowing in pesos, which could push up the cost of selling bonds for Chilean companies.
“If they tap too much domestically, they’ll crowd out the private sector, which needs funds for reconstruction,” said Rafael de la Fuente, chief Latin American economist at BNP Paribas SA in New York. “If they go abroad, they put pressure on the currency. That’s the trade-off.”
The peso rose 3.1 percent in the five days following the quake, the most of any of the seven Latin American currencies tracked by Bloomberg, on speculation the government would need to sell dollars to pay for rebuilding. Since then it has depreciated 1.8 percent, the most of 26 emerging-market currencies, after central bank President Jose De Gregorio said it may have “overshot.”
Chile’s peso will begin weakening late this year as the earthquake, economic growth and record-low interest rates sap demand for fixed-income assets, said Guillermo Osses, who helps oversee $50 billion in emerging-market assets at Pacific Investment Management Co.
The peso may slide to 550 per dollar in a year and to as weak as 600 in an “extreme case,” Osses said.
Source:businessweek.com/
