Chile Infrastructure Report Q2 2009

In the face of a harsh macroeconomic situation, particularly in Latin America, Chile's infrastructure sector has a relatively positive outlook for 2009. This is largely due to two factors: Chile's prudent fiscal controls over previous years and a strong government stimulus plan announced in January.

Chile's impressive public finances in recent years have enabled the government to put particular emphasis on countercyclical fiscal policy to stimulate economic growth and invest in infrastructure. The Banco Central de Chile's outlook for 2009 is better than many other Latin American countries, with BMI forecasting a real GDP growth rate of 1.8% year on year (y-o-y). The country has taken fiscal and monetary measures to save its economy, including a US$4bn stimulus plan in late 2008. As a result, neither BMI nor Chile's central bank are forecasting a recession for 2009.

Chile's finance ministry published details of the proposed stimulus programme on its website in early January, and has cited the plan as the cornerstone of government efforts to achieve 2-3% economic growth and maintain stability in the labour market. To achieve this, the proposed measures will aim to have a quick impact on the wider economy, focusing on four key areas. BMI predicts that for 2009 the construction industry in Chile will be worth $13.5bn, equating to real growth of 5.0 % y-o-y.

The build-up of solid public finances over the past five years has been the result of prudent fiscal policy at a time of soaring global metals prices - including copper, Chiles main export - in stark contrast to the region's other large commodity exporters, such as Venezuela. Windfall revenues have aptly been deposited in overseas funds, some US$22bn of which are now being tapped. Secure investment from the energy sector in 2009 will also create jobs and stimulate economic growth.

Chile's power sector will see growth in 2009 and help drive infrastructure with US$21bn already secured towards new projects and US$7.7bn of construction underway. Projects such as the construction of power plants, transmission lines, and storage and transport facilities at the country's ports are all planned.

Several types of new plants are also under development, from new coal power plants to the largest wind farm in Chile to date and extensive reforestation plans to take advantage of biomass potential.

The energy sector is set to be one of the only sectors that maintains high levels of investment despite the crisis. This is good news for the sector, which has been seriously struggling with capacity issues for several years. Chile is hoping to achieve energy independence through the construction of new capacity, and BMI's power forecasts indicate that generation will outweigh consumption in 2009, with a surplus of 3.8twh.