MercoPress. South Atlantic News Agency

Magallanes concerned with weak US dollar

The rapid weakening of the US dollar and strong appreciation of the Chilean peso is causing much concern among Magallanes main export industries and significant “cost restructuring” is forecasted this year if the situation remains unchanged.

Tourism, cattle breeders, forestry and the fish industry particularly farmed salmon, have warned local authorities and the Santiago government of the consequences for local industry of the current monetary policy with the "violent" downturn of the last twelve months, when the US dollar dropped from 720 to 560 Chilean pesos.

"Cheap dollars are good for winning elections, but Chile to develop needs a strong US dollar", said Rodolfo Tirado General Manager of Forestal Russfin.

Magallanes forestry exports represent 10 million US dollars annually but since the greenback has dropped against the Chilean peso, "we've lost at least half a million US dollars; labour and fuel have become dearer (in dollars) and if the situation persists we will be forced to make reductions", explains Mr. Tirado.

Mauricio Rosenfeld president of the Magallanes Forestry and Wood Association was more drastic: "there's no way we can compensate our losses with costs in Chilean pesos and our main competitors the Americans who sell in US dollars. This year we can expect losses above three million US dollars".

Similarly the tourist industry points out that bookings were done with the US dollar between 650/700 pesos to the US dollar, and costs were worked out on that basis, but the US dollar is now 560 pesos. "We're talking of over 100 pesos less per dollar, and in many cases that is our profit margin", indicated Raul Rudinovic, a Punta Arenas tourist operator.

Magallanes cattle breeders also feel uncertain about the future since costs must be paid in the stronger Chilean pesos and income, mainly wool, beef and lamb, is ruled by the weakened US dollar.

"This will necessarily have an impact, less labour, less fuel, less transport, less development, and this contraction will impact the whole economy", warns Monica Vukasovic member of the Magallanes Farmers Association board.

In the fishing industry there seems to be two views. Those who catch in the high seas don't seem to feel the crunch, quiet different from fish farming.

"We're not planning any cuts, we believe the US dollar is an excuse for inefficient management and forecasting, besides the fact that international prices and (Chilean) export volumes are in the increase helps to compensate", said Claudio Muñoz from Cabo de Hornos fishing company.

Contrarily Drago Covacich, General Manager of Nova Austral, Magallanes largest salmon farmers is sceptical, "We're selling 22% cheaper which means we have to adapt quickly to the new scenario and become more efficient. Our losses in the last six months have been significant".

Pesca Chile and Nova Austral annually export 40 million US dollars mostly farmed salmon, "but our revenue will be 20% less that is 8 million US dollars less. There's no business that works with those margins", underlined Mr. Covacich.

"The fish, water, food, we purchased at an exchange rate of 750 pesos to the US dollar. These costs have been incorporated so reversing a situation of this nature is not easy", explained Mr. Covacich adding that "a business of the magnitude we have here involved two years planning, and 2003 has been a complete loss".

Anticipating drastic cost structuring for 2004, Mr. Covacich revealed that 110 people already had been left redundant in Nova Austral salmon farms.