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S&P: Chile remains strong, but must improve productivity

Santiago, Chile – 18/03/2012 – as published by The Santiago Times.

Chile’s 2012 expected growth rate above average for region at 4 percent, but can improve.

Chile is the country best prepared to face the economic deceleration, according to credit rating organization Standard and Poor’s (S&P).

In an interview with El Mercurio, Jane Eddy and Regina Nunes, directors of S&P’s Latin America and the South Cone divisions, explained that while South America as a continent is doing well economically, Chile stands above the rest in its financial stability and ability to face the world crisis. 
Chile has been able to lower its external debt, maintain political fiscal stability and sound monetary reserves, and show signs of consistent development and economic flexibility. Many countries in the Euro Zone are struggling with those factors.

“When you see the situation in Portugal and Ireland, it is like things used to be in Latin America,” ” Eddy said. “Today the state of the region is improving while the state of Europe is deteriorating.”

However, South America is not immune to the crisis. S&P believes that Chile’s growth will be around 3.5 percent this year, similar to its growth last year.

Eddy said the ongoing world economic crisis still provides challenges for the country.

“In Chile exports will slowly fall and the price of commodities will have a slight dip – except for with petrol – and this will have an effect,” she said.

Chile has had stable growth over a number of years and is much more secure than the rest of the countries in Latin America, prompting Nunes to remark “if an unfavorable financial situation in Chile does not deepen the crisis it could be beneficial because there are opportunities (apetito) for stable countries in the region.”

“Chile is one of the few countries in the world with an A+ rating at the moment,” she added, “but they are missing the microeconomic reforms and some basic financial administration necessary to increase entrepreneurship.”

Chile must improve its productivity though to improve its rating. Even though they have the same rating as Israel, whose income per capita is US$13,000, Chile’s is less than US$15,000.

“Additionally, Chile depends a lot on commodities, and without a doubt, it will enter a stage of less growth,” Eddy said. “In addition, when neither the President nor Congress have much popularity and the demands for education and health seem to be gathering pressure, the microeconomic changes that are necessary might be difficult to achieve.”

Opportunities for business in the region look good on the whole and many businesses are enjoying lowering debts and interest rates on loans. The only pressure comes for those in the domestic housing construction and retail sectors.

Eddy and Nunes specifically mentioned the positive vision of Santander Bank that has expanded recently into Colombia and Mexico, commenting that perhaps this will even help situations with pensions and loans in European banks.