Chile Forum

I don't know much about economics, but I have noticed that the CLP is appreciating against all major currencies (EUR, USD, AUD even the Moroccan Dirham!) these past days after the earthquake.
My intuitive feeling would have been the reserve (that the CLP drops).
Can anyone explain?
It had already been appreciating a lot the last few months before the catastrophe.

Possibly related to price of copper. Also I'm curious about the potiential impact of foreign aid. People sending money from abroad need to buy pesos with their dollars, euros...

I'm not an economist either, but perhaps CLP is fine because:

Copper production wasn't dramatically impacted by the quake.

International optimism that Chile will be able to handle this crisis.

Markets seeing that there will be a lot of internal and foreign investment into Chile during reconstruction.

Everyone is speculating on millions of dollars flowing in through foreign aid and loans for the reconstruction, along with the copper price jump. We are keeping a close eye on it. I think steady and unchanged is at this point a blessing.

On a related topic (i.e. financial), my bank (Itau) have ceased to accept time deposits in UF for the time being. When talking to Banco Itau they thought maybe it will come back in a month. The reason given were uncertainty about the IPC but I find it strange. A big bank should be able to handle the uncertainty and charge appropriately for it ... that is their business. Anybody know if it is the same with all chilean banks?

Admittedly, this is not the most important topic under these circumstances...

Can someone explain what UF is? Are time deposits in Chile similar to CDs (Certificates of Deposit) in the US? Thanks.

The UF is explained here: http://en.wikipedia.org/wiki/Unidad_de_Fomento

Normally, big cost items, such as real estate, is priced in UF instead of pesos. As a consequence to this you also have mortgages and time deposits in UF. Right now it seems the uncertainty of the future inflation (possible spike?) makes the banks afraid to accept time deposits in UF.

As fas as I know a time deposit in UF is the same as a CD, however, a time deposit in a chilean bank does not have any depositor insurance (similar to FDIC insurance).

First and foremost, I think, there is an expectation that the Chilean government will cash in its foreign holdings to rebuild infrastructure; likewise for insurance companies here.

Some US(?) economists had initially predicted that the peso would drop in the short term due to the impact of having to spend 10-20% of GDP on rebuilding -- but I think they just don't know much about Chile and view it as any other developing country affected by a major disaster. On the Monday after the earthquake, a couple of banks managed to push that viewpoint on the gullible for the first couple of hours after opening. Then the rate stabilized for a day or two whilst traders figured things out and then just slid for a week...

My immediate (far-from-expert) reaction was that I think this may put the Chilean economy on the map. Who needs quantitative easing when you have a country to rebuild and the cash to do it? In the meantime, economies like the US and the UK just have several decades of high tax bills to look forward to.

James.

It looks like the uncertainty over the quakes and the mining industry are the big one. Which is good. We need a strong copper price to pay for the reconstruction.

Chile is also going to be bringing back a lot of its dollar reserves to pay for the reconstruction very quickly. Pinera announced something like 8 billion dollars will be spent over the next 60 days on critical infrastructure of health, education, roads, and rebuilding almost all the houses lost. By comparison, the last administration spent just 4 billion on stimulus program to counter the economic crisis over the course of several years.

Glad I borrowed CLP from my pareja as I did not want to do my beginning of the month withdrawal at 508.

Looks like I'll be able to get 520ish this week, another sign pre-February 27-like normality.

I don't believe Chile has the ability to spend 8 Billion USD in 60 days. It may be allocated, but it certainly will not be spent.