MercoPress. South Atlantic News Agency

Strong currency and exporters fears for 2006

As the soaring Chilean peso set a new five year record against the US dollar pushed by the high prices of copper and less chances of Central Bank intervention, a poll showed that 44,7% of Chilean manufacturers are planning to cancel or postpone investments in 2006 because of the strength of the Chilean currency.

The Chilean peso finished Wednesday at 515/516 to the US dollar, which represents a 7,7% appreciation so far this year compared to the 6,5% of the whole of 2004 and 12% since July 2004.

"With the latest statements from Central Bank representatives, the market and investors have the feeling that there will be no intervention to prevent the US dollar from sliding further, so there's an excess of the US currency", said a Santiago money operator.

"We don't discard the intervention option, but we see no problems in the functioning of the market as happened in 2001 and 2002", stated Jose de Gregorio, Chile's Central Bank vice-president during a conference on Chile's economic prospects.

However a poll among members of the Manufacturers and Services Exporters Association showed that 34,2% have plans to postpone 2006 investments; 10,5% to cancel; 39,5% to stick to the same level as in 2005 and 15,8% to increase them.

According to Patricia Perez not even the latest announcements of a free trade agreement with China, a partial agreement with India have been sufficient to counter the fears caused by the prospects of an exchange rate which proves unattractive for exporting.

As to next year's exchange rate expectations, 57,9% of manufacturers polled believe the Chilean peso will operate in the range of 530 to the US dollar; 36,8% estimate 545 pesos to the US dollar, but 23,7% believe it will be below the 515 pesos, 3% under 500 and only 18,4% estimate the range between 515 and 530 pesos.

Meantime record breaking copper continues to operate almost at 2 US dollars the lb in the London Metals Exchange.

Each cent rise in the price of copper means an additional 120 million US dollars for Chile, which so far this year has accumulated over 4 billion US dollars more than compensating the additional one billion of the oil bill.