Chile unveils $5.5 bn stimulus plan as economy shrinks

Chile's economy is under major strain -- new data showed it contracted 3.4 percent in October 2019 (year-on-year) and the peso has fallen to historic lows against the dollar

Chile launched a massive $5.5 billion stimulus package on Monday after data showed its economy contracted 3.4 percent in October -- the largest year-on-year drop in a decade -- amid widespread social unrest.

The package unveiled by Finance Minister Ignacio Briones includes boosting 2020 public spending by $3.03 billion, to support small, medium and large businesses.

Another $525 million are earmarked for other initiatives like the renovation of the metro system in Santiago, which has sustained serious damage since protests erupted on October 18.

"Estimates show that this agenda will generate 100,000 new jobs next year," Briones said.

But the measures will mean a real increase in public spending next year of 9.8 percent as compared to 2019, pushing the fiscal deficit up to 4.4 percent of gross domestic product.

"Like any Chilean household that faces unforeseen trouble, we will turn to our savings and our borrowing capacity, while remaining aware that both have limits that cannot be exceeded," Briones said.

The government announced the stimulus measures after the central bank reported the worrisome GDP figures for October.

The 3.4 percent drop was far greater than the 1.0 percent decrease anticipated in official estimates, and represented the economy's worst performance since 2009 at the height of the global economic crisis.

"Economic activity during the month was affected by the drop in services, commerce and manufacturing," the central bank said.

Mining activity -- Chile accounts for nearly a third of the world's copper production -- grew by 2.0 percent, but non-mining sectors contracted by 4.0 percent, the bank said.

- Support for the peso -

Protests initially erupted in mid-October over metro fare hikes but quickly escalated into the most severe outbreak of social unrest since the end of the dictatorship of Augusto Pinochet in 1990.

Furious Chileans have taken to the streets to protest social and economic inequality. Businesses have remained closed during the period of unrest, public transport came to a halt, and many people worked shorter days.

At least 23 people have been killed, including five at the hands of security forces, and more than 2,000 were wounded.

In the third quarter, Chile's gross domestic product was up 3.3 percent. But the new GDP figures announced on Monday prompted the government to revise official estimates of about two percent growth for the year downward, to 1.4 percent.

In 2020, they estimate GDP will increase 1.0-1.5 percent.

With the markets unsettled, the central bank on Thursday announced it was intervening in the foreign exchange markets to support the peso, which last week fell to a historic low of 828.36 to the dollar.

On Monday, the peso ended trade at 805.24 to the dollar.