GREECE HAS BEEN ONE OF THE KEY PLAYERS IN THE INTERNATIONAL POLITICAL AND ECONOMIC NEWS. BUT HOW CAN ITS CRISIS AFFECT CHILE?
SANTIAGO — A debt of about €320 billion (around US$358 billion): that is the basis of the crisis that affects Greece, says the director of studies of Accounting at the Universidad del Pacífico, Arturo Farías.
“This debt arose from the fact that for many years the country was spending more money than it was producing, and was financing it through loans,” he adds.
Although this deficit Greece presents is not very different from what could happen to any country, Farías points out that the problem lies in Greece belonging to the Eurozone, because the level of indebtedness that has been reached is far above the limits agreed by the member countries of the Union.
“To this were added internal problems such as corruption and tax evasion which ended up causing a deficit much higher than the 3 percent GDP provided as rule by the Eurozone. Today the debt significantly exceeds the 60 percent limit agreed by the Eurozone members and currently is estimated at 177 percent of GDP,” he specifies.
Farías says that the big question is why this situation was not taken into account before and only went public when the global financial crisis limited Greece from accessing credit, prompting the intervention of the other Eurozone countries, fearful of the impact of a cessation of payments or default.
“Under these circumstances, the EU has effected a series of financial aids to Greece, but conditional to quite unpopular austerity measures among the Hellenes. These have included drastic cuts in public expenditure, higher taxes and reforms to the pension system and the labor market,” he says.
Many analysts have established that the measures imposed on Greece are not in the best interest of its citizens but of the euro.
“These measures have worked, given that the delivery of resources has helped to reduce the impact of the Greek crisis on the common currency. Unfortunately, the impact of the austerity measures on the Greek people has been critical, since for example the unemployment rate increased 26 percent, the highest in the European Union,” explains Farías.
The effects in Chile
If we analyze the effects of this conflict in Chile, it would not be directly linked to the trade relations the country has with Greece, but to the relations that it maintains with the Eurozone.
“It is important to remember that the total exports from Chile, 20 percent or 25 percent are exports to the European Union. Also, Chile has a macroeconomic framework and an external liquidity and solvency situation adequate to address international financial stress scenarios such as which could develop if problems escalate,” points out Farías.
In this sense, the expert says that direct exposure of Chile’s markets in Greece is low, while the percentage of inversions of Chilean companies in Europe is reduced.
“Banks have strong indicators of liquidity and solvency, and its direct exposure to Greece is intangible. Direct investment of pension funds in the Helenic country is also reduced, while insurance companies do not have investments in Greece,” specifies Farías.
Therefore, he maintains that thinking this could transform into a situation like the one experienced in 2008 with a global crisis is difficult, especially remembering the losses suffered by Chile’s retirement funds during that period.
“Nevertheless, as a small country open to global markets, we are not isolated from increased volatility of international financial markets,” he says.
What is important to analyze is a factor that could receive an immediate impact; the dollar.
“With the weakening of the Euro, investments in this currency are starting to appear to take refuge in different and safer assets, such as gold and, above everything, the dollar. For this reason, along with other factors related to the price of copper mainly, the dollar has crossed the barrier of CL$670,” explains Farías.
“This situation is complicated, since our economy is not moving, or does it at a 2 percent rate, with a low copper price, added to the decision of the Central Bank of maintaining the monetary policy rate at 3 percent for almost a year, so it is very difficult that the peso may gain ground against the dollar. Now, in foreign terms, transactions are marked by the sharp fall of Chinese stocks, which suffered its biggest contraction in 8 years, amid of the fear of economic performance and fear of the bursting of a stock market bubble,” adds the professor of the U. del Pacífico.
“Now, looking at the domestic situation, it is important to provide also a view to other relevant element of our economy: inflation. The marked increase exhibited by the dollar price in the local market, plus the fuel 9 consecutive rises and the drought depressing the values of fruit and vegetables, has provoked that the estimates for the accumulated CPI at year-end are increasingly closer to the upper limit of the 4 percent target range established by the Central Bank”, mentions Farías.
He states that “flight tickets and package tours will pump inflation immediately by the rising dollar. To this we add that in September there will be another impact due to the change of car models and, in a larger period, these effects will start to show on imported goods, such as clothing and electronics.”
Fortunately, these increases in inflation have been in part balanced by a drop in domestic demand and a drop in oil prices, a situation that has allowed this factor not to shoot up.
“Given this scenario, caution, austerity and patience are suggested since in these episodes of high volatility and uncertainty, both internal and external decisions must be well analyzed because the main objective is to assess the trend of indicators and not its situation or value at a specific point in time. Therefore, the basis of these decisions should be given by the management of the aforementioned indicators trends,” suggests Farías.