Chile drought looms as La Nina takes its toll on farm output

SANTIAGO, Chile, Feb. 10 (UPI) -- Chile has ordered nationwide contingency planning to prepare for damaging effects of a drought triggered by La Nina weather phenomenon, already seen behind low rainfall and poor agricultural harvests in Argentina.

A succession of natural disasters has put unexpected financial pressures on President Sebastian Pinera's announced plans to catapult Chile into the 21st century. Major parts of urbanized Chile were devastated in a February 2010 earthquake that depleted the country's cash surplus soon after Pinera took office. A tsunami and floods caused further damage.

The natural disasters followed adverse effects of the 2009 financial crisis on Chilean economy, which caused the economy to contract 1.5 percent at that time. The government has set a goal of a 6 percent annual growth in gross domestic product.

Despite the 8.8-magnitude earthquake, Pinera said Chile maintained a robust growth through 2010.

"In spite of the devastating quake, in 2010 the economy grew 5.2 percent and 428,000 new jobs were created while salaries grew 4 percent," Pinera told reporters.

The earthquake and the tsunami killed more than 500 people and caused damage estimated at $30 billion, about 18 percent of Chile's gross domestic product.

But Pinera indicated that job and income losses resulting from the quake were more than compensated by about 428,000 new jobs created during the year and a 20 percent increase in investment and continued growth in exports.

The oncoming drought caused by La Nina is a different matter. The Chilean economy is already under pressure from an overvalued peso that threatens to undermine the country's exports. A chronic shortage of rain during the year will impact on agricultural harvests and hit exports, analysts said.

An onset of drought would also challenge the president's election pledge of creating 1 million new jobs and raising per capita income from $14,341 in 2009 to $20,000 within his term of office.

Pinera said he was confident he could honor his election pledges and implement a more effective poverty reduction program in Chile.

"We are very confident Chile will be able to defeat poverty and overcome underdevelopment by the end of this decade," Pinera said.

Meanwhile, Chile's central bank continues to pour money into a regulatory intervention aimed at moderating the peso's strong rise. Officials said the bank intends to spend up to $12 billion on the intervention. Current plans call for a purchase of $50 million a day in a bid to control the peso.

La Nina is complicating government efforts to regulate the economy. Hydroelectric power generation has suffered as low rainfall has begun to empty the reserves. Chile produces about half of its energy though hydroelectric power. Officials said the shortfall was already estimated to be about 10 percent of the total hydroelectric production feeding into the grid.