Chiles Finance Minister Felipe Larrain yesterday
outlined measures to finance reconstruction after the massive
earthquake that struck the country in late February.
President Sebastian Piñeras government
estimates that damage to infrastructure, loss of production and
clean up from the 8.8-magnitude earthquake will cost
approximately $30 billion, i.e. roughly 20% of the
countrys 2009 GDP.
Larrain, speaking to reporters in Cancun, estimated that
reconstruction would take around three years, but the
government will do what it can to work more rapidly.
The first measure, announced on Friday, is to cut the
budgets of all ministries, to channel $700 million into a new
There may be a tax increase, but it would be moderate and
would not be the central component for
reconstruction. Larrain said. We are going to make
sure it does not affect economic growth.
In tandem with a tax increase, but not mentioned by Larrain
in Cancun, the government is also studying an increase in the
royalty paid by copper companies. Chile is the worlds
largest copper producer.
Larrain said a combination of mechanisms would be used to
raise money. The elements under study include incurring debt
internationally and in pesos, as well as issuing sovereign
bonds. He also said that some of the $12 billion saved during
the boom years of the last decade in a sovereign wealth fund
could be used for reconstruction.
We are likely going to have a mix of these different
forms of financing to avoid, for example, a massive influx of
dollars that would affect the exchange rate, he said.
The Piñera government is keen on getting the private
sector involved in the reconstruction and Larrain, as with
other ministers, stress that the $30 billion in losses are both
private and public.
The government will assist some in the private sector, but
would like to do this through public-private partnerships and
other mechanisms that combine resources and technology.
Larrain said that the government is committed to reaching
its macro-economic targets, such as balancing the budget, but
called for patience. The earthquake has changed our
short-term plans, but we are not going to step back from our
He said the fiscal deficit was 4.5% of GDP and that this
would decline, but did not want to offer specifics. We
have been in government for 10 days, but because of the crisis
people are talking as if it has been a year.