Chile FinMin sees 2010 GDP growth dipping on quake

* Vows quake reconstruction will avoid peso appreciation

* Government may sell some non-vital state assets

* Any tax increase won’t hurt individuals, small biz

SANTIAGO, March 21 (BestGrowthStock) – Chile’s new finance minister
sees economic growth dipping below 5 percent in 2010, a slight
downward revision from a previous forecast for slightly above 5
percent, according to an interview published on Sunday.

Finance Minister Felipe Larrain also said in an interview
with newspaper El Mercurio he had not closed the door on the
possibility of privatizing non-vital state assets to help fund
reconstruction after the 8.8-magnitude earthquake on Feb. 27
that killed hundreds and caused an estimated $30 billion in
damage.

“If before we could expect (GDP growth of) between 5 and
5.5 percent, today we are expecting less than that,” Larrain
said, adding the government however maintained its target of
average annual growth of 6 percent during conservative
President Sebastian Pinera’s term.

Eight days before the quake, Larrain had told Reuters he
expected economic growth a bit above 5 percent this year.

Chile’s GDP growth turned positive in the fourth quarter of
2009 after three quarters of contraction. The turnaround came
just before the world’s fifth-largest recorded earthquake since
1900 struck, mangling cities in south-central Chile and
triggering deadly tsunamis.

Larrain reiterated the government would not seek to
privatize state copper giant Codelco, the world’s top producer
of the red metal, but said he may consider selling other
assets.

“I am not going to close the door on the idea of
privatization,” he said. “We can turn to selling some non-vital
state assets.”

The quake hit in the final days of the center-left
presidency of Michelle Bachelet and 12 days before billionaire
Piniera was sworn in, ending 20 years of leftist rule.

The government estimated damage at $30 billion, including
lost productivity, and expects more than half of that to be
paid for by the private sector, Larrain said.

The government expects to raise more than $700 million for
its reconstruction fund by cutting government spending on goods
and services 5 percent across the board, Larrain told El
Mercurio.

Larrain told a conference on Friday the government would
cautiously tap a variety of financing sources including
sovereign wealth fund savings and government cash currently
budgeted elsewhere.

He has also suggested the government may try to limit the
size of any foreign bond issuance to protect the peso currency
and help the recovery of devastated fishing, forestry and
agricultural exporters.

Chile holds nearly $12 billion in a sovereign wealth fund
created out of windfall copper boom savings.

“If you ask me if we are going to use resources from the
fund, (I would say) very probably yes, but preserving the
exchange rate,” he told El Mercurio.

Larrain said individuals and small businesses would be
sheltered from any eventual tax increase, and the government
was still studying whether it would make changes to royalties
on the linchpin mining sector.

He also expressed a preference for raising debt on the
local market while also trying to prevent interest rates from
rising.

Larrain did not say how Chile planned to do that, or how it
would repatriate sovereign wealth fund dollars without peso
appreciation, but favored coordination with Chile’s
traditionally very independent central bank.

“One respects the autonomy of the Central Bank, but I
believe it is important to coordinate policies,” he said.

Stock Report

(Reporting by Daniel Trotta; Editing by Simon Gardner and
Maureen Bavdek)

Chile FinMin sees 2010 GDP growth dipping on quake