Chile Tourism Report Q1 2009

Chile comprises a long narrow strip of land that stretches for around 4,200km down the western tail of South America. It boasts an astonishing variety of natural attractions, from its northern deserts, spectacular mountain ranges and glaciers, to the Lake District, and the mysterious statues of Easter Island.

As one expects, it is a popular destination for tourists.

In fact, Chile is well on its way to becoming one of South America’s premier travel destinations. In terms of the growth of the tourism sector, it is one of the fastest growing in the world. However, despite this, tourism has yet to become a cornerstone of the Chilean economy, and its relative contribution to the national economy remains low by both regional and world standards. This basic situation leads us to assume that there is very large scope for development in this area. Indeed, the Chilean government seems to have realized this recently and has therefore been actively promoting the expansion and improvement of the industry. The contribution of Travel & Tourism to Gross Domestic Product (GDP) is expected to rise from 4.5% (CLP4,182.2 bn or US$8,206.4 mn) in 2008 to 4.8% (CLP8,542.3 bn or US$11,720.8 mn) by 2018. The appropriately named ‘plan de acción de turismo’, developed by the Chilean government, in conjunction with SERNATUR, includes provisions that aim to increase the number of tourists in Chile from 2.5mn in 2007 to 3mn in 2010. Tourism, it is hoped, will generate US$2bn in 2010.

Some of the most prominent recent developments are the substantial investments by hotel groups, resort and tour operators, and casino resorts. The rising level of investment stems in part from a substantial measure of international confidence in the Chilean government. Substantial investment programmes are also under way in the country’s ski resorts around the capital, Santiago, at Portillo, Valle Nevado, Farellones, La Parva and El Colorado, and in the southern resorts, particularly Termas de Chillan. Vina del Mar has been transformed by the construction of luxurious apartment buildings along its beaches, and other resorts in the coastal area between Rocas de Santo Domingo and La Serena have also received huge investment in recent years. A sector to keep an eye on has been the veritable boom in special interest tourism. Sports fishing, whale watching, eco-tourism and gaming are all benefiting from government encouragement and growth.

Chile’s tourism industry has, for some time now, been concerned about the potential negative effects of the HidroAysén dam project destined for southern Chile. HidroAysén is a joint entity created by Spanish- Italian electricity giant Endesa and Colbun, a Chilean company. Together they plan to build five massive dams in Chile's far southern Region XI, and area also known as Aysen. The dams are slated for the region’s two largest rivers: the Baker and the Pascua. Before moving ahead with the project, HidroAysen must first gain approval from Chile's National Environmental Commission – a commission that relies on political rather than technical considerations in determining the viability of a project. Most recently, on Nov. 19, 2008, Hidroaysén asked the regional branch of CONAMA (the government environment authority) in the southern province of Aysén to extend the Environmental Impact Assessment approval process until August 2009, and the request was immediately accepted.

Economy: The Chilean economy continues to face troubling times, with worries about lower output levels as a result of power shortages and record high global energy prices being replaced with concerns about financial stability, dwindling investor confidence and deteriorating terms of trade. On top of the growing number of risks facing the economy, such as more restrictive credit conditions for businesses and consumers and falling external demand for Chile's commodity exports, high inflation levels continue to haunt the economy. Although we expect slowing economic activity and tighter lending to see inflation levels decline by early 2009, monetary policymakers have restricted room to ease credit conditions and stimulate demand by lowering interest rates, in light of 14-year high headline inflation of 9.9% y-o-y in October.

Politics: The outcome of the widely anticipated October 26 municipal elections in Chile did little to alleviate the growing uncertainty over the ruling coalition's political future ahead of the 2009 presidential election. The ruling Concertación de Partidos por la Democracia, while securing a majority of councillorships, narrowly lost in the mayoral vote against the centre-right opposition Alianza por Chile, including in the capital Santiago. Indeed, despite winning council seat majority in Chile's municipal elections on October 26, the ruling Concertación de Partidos por la Democracia (CPD) coalition failed to avert our growing belief that the centre-left bloc, which has been at the helm of Chilean politics since the Augusto Pinochet era 18 years ago, will be replaced by a centre-right government next year. Concertación garnered 45% of the vote for councillorships against the centre-right opposition Alianza por Chile (APC)'s 36%. However, APC secured a slight majority in the race for mayoral posts in the poll (around 40% including the borough of Santiago, against 38% for Concertación with some 95% of votes counted), suggesting that the opposition will enter next year's presidential election with an improved footing.