General State of the Economy in Chile

The Chilean economy posted a good performance in 1996 as it grew by 6.8 percent from 1995, when GDP increased by 8.5 percent. The sectors performing best were construction, mining, transport and financial services, while industry, fisheries, and agriculture did poorly.

One of Chile's principal achievements in recent years has been to bring inflation under control, down to 6.6 percent in 1996 against 8.2 percent in similar circumstances in 1995.

The private sector had to live with prolonged economic adjustment to bring inflation under control. This was basically accomplished by raising interest rates to reduce private expenditure, though this also curbed potential growth.

This policy has led to a reduction in the real dollar exchange rate by about 4 percent in 12 months, which is affecting private sector competitiveness.

The number of persons employed rose by 76 600 in 1996 and unemployment stood at 5.9 percent.

External trade was affected by the price drop for some of the country's main exports, including forest products, which produced a trade deficit of US$ 12 326.8 million, in contrast to the surplus of US$ 1 384.1 million in 1995.

The Forestry Sector

Chile's primary forestry sector accounts for 3 percent of GDP which, although still modest, should increase significantly in subsequent years as large areas of plantation reach maturity and heavy investment in pulp, sawmills, manufactures and other sectors comes on stream.

The forestry sector was hit by the sharp, extensive fall in international prices of significant products which seriously eroded corporate profitability (down 45 percent). This fall in international prices, particularly of pulp, newsprint and sawnwood impacted heavily on exports which fell by 23.7 percent, earning US$ 1 808 million in 1996 against US$ 2 369 million in 1995. Investment has nevertheless remained high, testifying to continued confidence in future performance.

An average of 116 000 ha have been planted annually in the last five years, mainly with Monterey pine and to a lesser extent eucalyptus. A further 80 000 ha are scheduled for planting in 1997.

Investments to the year 2000 are expected to total US$ 3 280 million allocated as follows: forest plantations - US$ 130 million; pulp and paper - US$ 2 500 million; sawmills and manufactures - US$ 300 million; wood panels - US$ 200 million; and other - US$ 150 million.

International prices are expected to rise in 1997 so exports should increase by 9 percent, reaching a value of US$ 1 970 million.

The year 1997 will be very important for the forestry sector as the amended law on forest promotion (DL 701) should be approved, encouraging planting on degraded land and small properties. Moreover, the proceedings for draft legislation establishing a legal framework for the indigenous forest should enter their second stage.

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