Chile’s quake jolts economy but leaves ratings unscathed

Chile's massive earthquake is unlikely to impact the sovereign's A1 foreign and local currency ratings, which remain on positive outlook, Moody's Investors Service said in a brief comment in the wake of the February 27 disaster.
"Chile's strong institutions and financial flexibility position it well to deal with the significant and regrettable human and economic toll," said Moody's Vice President Gabriel Torres. "We expect a moderate drop in GDP growth for 2010 but a pickup later on as the reconstruction kicks in."
He said Moody's will continue to follow developments in the country and will reassess the situation as more information becomes available.
"The full damage of the earthquake has obviously not yet been fully assessed, and therefore, it remains unclear to what extent the economy and various industry sectors will be affected by this event," said Torres. "Chile's solid fiscal and financial positions further support the country's ability to deal with this shock."
He said initial estimates place the economic losses from US$ 15-30 bln, compared to a forecast $180 bln GDP for 2010, but those are likely to change in coming weeks. Still, this refers to overall economic losses, not the direct impact on government's finances. Earthquake insurance is common in the country, which will help cushion the economic and financial impact.
"We expect economic growth to lag the 4.5% originally forecast for 2010, but historical evidence from other natural disasters supports the view that the earthquake will have no permanent impact on trend growth," said Torres.
"Chile has over $11 bln in financial assets and its very low debt burden, less than 7% of GDP and one of the lowest among rating peers, allow it to ramp up borrowing, if needed."