UPDATE 2-Chile sees effective structural deficit in 2010

* Chile sees effective structural deficit in 2010

* Government to increase spending for quake reconstruction

* Financing mix to avoid dollar inflow avalanche
(Adds central bank chief comments)

SANTIAGO, April 9 (BestGrowthStock) – Chile sees a structural
deficit of 1.2 percent of gross domestic product in 2010 and
will boost spending to rebuild cities and industries ravaged by
a massive earthquake, Finance Minister Felipe Larrain said on
Friday.

Larrain said the government planned a mix of instruments to
finance the reconstruction effort following the 8.8 Feb. 27
temblor, including issuing debt, a moderate tax adjustment,
using copper boom savings and selling some non-core state
assets.

“With February data, i.e. without taking into account the
reconstruction plan, the 2010 structural deficit will be 1.2
percent of gross domestic product,” Larrain told reporters.

“The change in the fiscal situation is not due to a lower
revenue estimate,” he added. “The new fiscal situation is due
to an increase in forecast spending for 2010.”
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Breakingviews column [ID:nN09186559]

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Larrain said there will be no avalanche of dollar inflows
to the South American country because of the financing mix.

Central Bank President Jose De Gregorio told Reuters
Insider on Thursday that net dollar inflows into the country
would be far lower than some in the market are expecting. For
more see [ID:nN08208082].

In a local newspaper interview on Friday, he said the
country’s economy should fully recover from the impact of the
quake within two years.

“Our estimate is that, within a two-year period, the
economy’s gross domestic product should be close to what it
would have been if the earthquake hadn’t happened,” De Gregorio
was quoted as saying in La Segunda newspaper.

“The economy will suffer, but it will recover strongly in
the second half of 2010,” he added.
Investing

(Reporting by Simon Gardner and Antonio de la Jara; Editing by
Diane Craft)

UPDATE 2-Chile sees effective structural deficit in 2010