Category: Chile

Chile’s Central Bank has raised the benchmark lending rate a quarter of a percentage point, from 4.75% to 5%, in line with market expectations. Chile’s stronger economic growth and annual inflation of around 4% has prompted the Bank to push up the overnight lending rate to its highest level since March 2002. Last month the Bank held the rate unchanged, offering some hope for local exporters who have been hit by the strength of the peso against the US dollar.

Chile has approved a plan to increase pension payouts to the lowest-income members of society by 10%. The pension hike will be partly funded by maintaining Chile’s VAT at 19% next year instead of lowering it as was previously planned. This will give the government $622 million to help pay for the plan, which is part of a larger project of social protection put forward by the new government. The pension reform is President Bachelet’s first legislative success since taking office on March 11.

The Chilean government will seek to keep the VAT rate at 19% in 2007 to help fund social programs, according to President Michelle Bachelet, indicating the new government is set to tackle under-funded pensions among other priorities. The rate was set to fall next year unless Congress approves to maintain it. Each percentage point on VAT is worth US$600 million to the government. Bachelet was elected last month as the first female president in Latin American history.

Telefonica CTC Chile, the country’s largest telecom operator, sold $100 million in local bonds to refinance debt, its first sale in the local market for eight years. The paper pays 4.14 percent and comes due in 2012. The rate it paid was 118 basis points above benchmark sovereign debt as high demand pushed it down from the original 4.4 percent the company offered to investors.

Meanwhile Chilean mobile telecoms company Entel says it has agreed to sell its US long-distance subsidiary Americatel USA, valued at $62 million, to US private investment firm Platinum Equity. Entel will receive $49.6 million in cash (minus any company debt) in return for 80% of Americatel’s stock. Entel has reportedly been trying to sell Americatel for some time in the face of strong competition in the US market. The sale of the unit means that Entel no longer has any interests in the US.

After an eight-year absence from the local bond market, Telefónica CTC Chile, the local subsidiary of Spain’s Telefónica, is to return with a $100 million offering of local inflation-linked bonds. CTC Chile, the country’s largest fixed-line telephone operator, will issue UF3 million of the bonds to mature in 2012; the bonds will carry a coupon rate of 3.75%.

Fourth-quarter economic growth in Chile showed signs of heating up, coming in just ahead of the average estimates of market watchers. GDP grew 5.8%, driven by the continuing record highs of the price of copper, Chile’s main export product. The last-quarter growth took overall annual expansion to 6.3%, the fastest rate in the past eight years. (The growth figures, released Wednesday by the Central Bank, were revised up from the Bank’s earlier estimated figure of 5.2%.)

Chilean retail chain Cencosud has raised $130.8 million in the local market after placing UF4 million inflation-linked bonds. The bonds, which mature in 2027, carry an interest rate of 4.52%. The sale is the final part of the company’s plan to refinance short-term debt. Cencosud has supermarkets, shopping malls, home improvement stores and department stores in Argentina and Chile. It has been expanding aggressively over the past few years and last year made net profits of $199 million, up 96% on 2004.

The Central Bank of Chile has left the country’s overnight benchmark lending rate unchanged at 4.75%, in line with market expectations. Slower-than-expected economic growth and falling inflation last month prompted the hold in rates. The move will help Chile’s exporters, who have been hit by the strength of the peso against the US dollar. Exports account for over one-third of the country’s GDP.

Chile’s newly elected president, Michelle Bachelet, has appointed a new head for Codelco, the country’s state-owned copper producer. José Pablo Arellano, an economics graduate from Harvard University and former government budget director, will become executive president, replacing Juan Villarzu. Arellano has been appointed to oversee the $12 billion investment plan that will allow Codelco to expand output in the face of rising global demand, in particular from China. Last year Codelco earned the Chilean government a record $4.9 billion.