SUNS  4328 Friday 20 November 1998

Santiago, Nov 18 (IPS/Gustavo Gonzalez) -- The virtual economic standstill reflected in the latest Chilean Central Bank report has the government in a spin, while the business sector complains
anti-crisis adjustment is going too far.

Chile, one of the strongest Latin American economies, ranking 44^th in the world in terms of Gross National Product and with growth of 5 percent per year since 1991, has seen its remarkable progress stutter to a halt in recent months.

The monthly economic activity index (Imacec) drawn up by the Central Bank saw an increase of only 0.1 percent in September.

Financial and productive sectors have already issued warnings that October and November could present negative indices, and the Central Bank was called on to cut interest rates from 10 to 8.5
percent in order to reduce the risk of economic recession.

The headlines of Chilean economy daily 'Estrategia,' stated if September's tendency continues, GDP will grow barely four percent this year, way below the five percent target set by the government.

September's Imacec was the lowest figure of the last eight years, following the -0.2 percent of November 1990, which determined growth of barely 2.7 percent in the third quarter of this year
compared with nine percent in the same period of 1997.

October must also have had a negative result as exports dropped 26.3 percent in this month, while imports shrank 25.9 percent.

In 1997, Chile underwent growth of 7.1 percent within the general expansion of all the Latin American economies, but this trend was reversed this year as a consequence of the Asian crisis sparked in Thailand 16 months ago.

Toward the end of last year, the Central Bank implemented safeguard measures against the crisis, through a sustained financial adjustment of the referential interest rates, increased on four occasions since November 1997.

In October, the Bank gave signs of easing the adjustment, but reducing the rate on its 90 day bonds from 12.5 to 10 percent, but the economic tendencies indicate the measure was insufficient.

Economic analysts and entrepreneurs urged the Central Bank to implement a fresh reduction in interest rates, taking the base rate to 8.5 percent, in order to diminish the cost of credit and aim for
productive reactivation.

Finance Minister Eduardo Aninat, described September's Imacec of 0.1 percent as "meagre," although he took the most optimistic angle possible, classing this as a reflection of the thoroughness with which adjustment measures have been applied.

Aninat indicated, however, that the Central Bank should explain the low economic activity index from September, and vice postholder, Manuel Marfan, warned the Chilean economy was in need of
"deceleration, not stagnation."

The Central Bank explained performance in the third quarter appeared weaker as it compared unfavourably with high Imacec growth figures in similar periods of previous years.

The Imacec grew nine percent in the first quarter of 1997, largely due to the increase seen in September of this year, when economic activity sprang up 11.2 percent.

During the course of this year, Chile's GDP has suffered a constant reduction in its growth rate, accumulating by September an increase rate of 5.2 percent, lower than the 5.8 percent registered up until August.

Both the Central Bank and the Finance Ministry denied the country was threatened by recession, although they admitted the economic outlook for the rest of the year is not as good as it could be.

The difficulties caused by the international crisis are compounded by low rainfall throughout 1998 in Chile, which had knock-on effects on the supply of electricity from hydroelectric sources
this month, and consequent negative repercussions on production.