Based on the need to provide comfort to foreign counterparties of local entities in connection with derivative transactions, the counsel of the Chilean Central Bank interpreted on January 23 2009 the various regulations issued up to that date in the context of the latest amendments of the June 2007 Chilean Bankruptcy Law and Banking Law, which related to the set-off of derivative transactions in bankruptcy or liquidation scenarios.
With neighbouring Argentina and Bolivia awash with economic and political turmoil, Chile has been an island of stability in South America's southern horn. Facing intense pressure over the past few years to spend the $20 billion-plus surplus created by copper exports, the fiscally prudent policies of finance minister Andrés Velasco proved to be well founded when the global economic crisis hit....
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With neighbouring Argentina and Bolivia awash with economic and political turmoil, Chile has been an island of stability in South America's southern horn. Facing intense pressure over the past few years to spend the $20 billion-plus surplus created by copper exports, the fiscally prudent policies of finance minister Andrés Velasco proved to be well founded when the global economic crisis hit. The accumulated funds would allow the government to stimulate the economy safely for several years if the need arises.
Fears were raised in the first quarter of 2009 regarding Chile's largest industry, when the value of copper exports plunged 66% in March over the previous year. The commodity market swiftly recovered in the ensuing weeks, spurred largely by increased demand from China. However it is apparent that Chile's overwhelming reliance on its copper trade makes it vulnerable to the Asian nation's appetite for the metal. The recent market swings underscore the need for Chile to develop other industries to support its economy through periods of weak global copper demand.
Despite Chile's relatively strong economy, the nation's workforce suffered a dramatic rise in the unemployment rate, which reached 10.2% in the second quarter of last year. The government hopes to counteract this with an ambitious $4 billion stimulus package – one of the world's largest in relation to Chile's size. The plan includes tax breaks for businesses, a job-creating public works programme and added funding for energy and resource development projects. Given Chile's enterprise-friendly nature, the stimulus package should create attractive opportunities for investors.
One problem sector in the economy is Chile's commercial fishing industry (second only to Norway's), which is suffering from an outbreak of infectious salmon anemia – a virus that has destroyed populations at salmon farms and hatcheries. Some operations saw their output plummet as much as 64% last April over the previous year. Since it takes two years for salmon to reach harvesting size, fishing operations will need financing to make it through the blight. Whether this comes in the form of a government bailout or private lending, Chile's southern fishing communities will be looking for loans in 2010.
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