CHILE

ECONOMIC SITUATION OF THE COUNTRY - 2001

Despite macroeconomic equilibrium, in 2001 GDP grew a mere 2.8 percent, the lowest figure in the last five years, after the 1 percent fall registered in 1999. The causes of such a reduced growth rate were a weak domestic demand, the slowdown of the world economy, and the economic and political problems in practically every country in the region, especially Argentina. Projections for 2002, made in January, forecast a growth of 3.3 percent.

In spite of the slowdown of the world economy, national exports grew by 7.1 percent in real terms in 2001, this figure is slightly lower than the 7.5 percent achieved the previous year. A lower growth rate is foreseen for 2002, and is expected to reach around 4.2 percent.

In real terms, goods and service imports fell by 0.9 percent in 2001, registering a sharp fall when compared to 2000, in which they increased by 10.1 percent. This compression of imports is strongly related to a fall in domestic economic activities. This year, imports are expected to expand by around 6.7 percent, in 2001 total exports were FOB US$17 668 million, while imports reached US$15 877 million.

Terms of trade had an unfavourable evolution in 2001, with a 7.1 percent fall compared to the previous year, while a 2.6 percent recovery is expected for this year. The factors that affected this evolution were the strong fall of copper, pulp and salmon prices, and to a lesser degree, the fall of fresh fruit prices, which resulted in an average 11.4 percent drop in export prices. Import prices fell by 3.9 percent due to lower oil prices. It is estimated that Chile lost 4.5 percent of its GDP as a result of the deterioration of its terms of trade.

In 2001 domestic demand fell by 0.5 percent compared to 2000, with investment in machinery and stocks being the two components that were more volatile and sensitive to the rate of exchange. Private consumption grew at a slow 3.2 percent, while investment in housing increased owing to better credit conditions. The perspectives for this year indicate a slight expansion of domestic demand, in the area of 2.6 percent.

With regards to the deficit in the current account of the balance of payments, in 2001 it fell to 1.6 percent of the GDP, and a further reduction of this balance is expected for this year.

A negative aspect of the national economy in 2001 was the high rate of unemployment, which reached 9.1 percent. This factor has had a significant effect upon low domestic demand and has resulted in a loss of confidence on the part of consumers.

The complex and uncertain international economic situation during 2001 affected the economy, generating a lower disposable income which affected consumption; lower profits, which affected investment and less dynamism in the area of exports. Inflation was kept under control and reached 3.1 percent.

PERFORMANCE OF THE PAPER AND WOOD INDUSTRY - 2001

Owing to the openness of the national economy in general and of the forest sector specifically, the slowdown of the United States and Japanese markets had a significant effect on the sector's trade during 2001. This situation, together with the fall of domestic expenditure which the country has suffered for four consecutive years, was reflected in a greater fall in aggregate demand, which had a heavier effect on small and medium forest companies.

Consumption, production and trade of forest products

Consumption

In 2000, industrial logging totalled 24.4 million m³. The following chart gives the total consumption of roundwood during 2000.

Industrial roundwood consumption

Source: INFOR

Production

Production

Source: INFOR

* 90 percent of Sawnwood production involves Radiata Pine

** Takes into consideration the production of chips coming from residue of saw mills

Paper and boards, 2001

Pulp production, 2001

Source: CORMA

Forest Product Exports

Forest products exports, 2001

Source: INFOR

* Approximately 90 percent of sawnwood production is radiata pine

In 2001, forest exports totalled US$2 205.62 million, which represents a 6.7 percent fall over the previous year. In 2001, the principal destination according to country was the United States with US$512 million, followed by Japan with US$274 million; China with US$241 million; Mexico with US$94 million; and Italy, with US$91 million.

Financial performance

Chilean forest companies had a normal financial performance in 2001, with standard levels of borrowing. In the case of companies with investments in Argentina, the crisis has affected them, but not to a significant level.

Outlook for the future

In the short term, it can be foreseen that 2002 will be similar to the preceding year as far as exports are concerned, while the domestic market might show a slight improvement as a result of greater activity in the construction sector. In the next few years, it is expected that an increase in available timber will go together with an increase in investment in the sector, especially in the area of pulp production. The new bleached Radiata Pine and Eucalyptus pulp plant in the area of Valdivia is already under construction, and should be put into production by 2004. This facility will be able to process 600 000 tonnes per annum. This investment, together with others in the sector will extend the sector's overall pulp capacity to 3.46 million tonnes by 2006.

According to CORMA estimates, total investment over the period 2001-2010 will reach $3 600 million, concentrated in the area of cellulose.

ISSUES OF PARTICULAR INTEREST

Progress in sustainable forest management and certification

ISO 14.001: In 1998, CORMA started to actively promote environmental management certification, and in 1999 an important number of its affiliated companies began joint work in order to advance towards ISO 14.001 certification. By 2001, nine forest companies had obtained their ISO 14.001 certification, which is the equivalent of 1 million hectares of forests under this international certification scheme and provides Chileans firm evidence of responsible management.

But, as this certification not only covers productive forests, but the entire forest area administered by the companies, the total area under sustainable management exceeds 1 600 000 hectares of land, which includes production areas - plantations, adjacent formations protection areas - native forest, fragile soil and basins - and others.

Part of the project of our association is that another four forest companies should gain certification, so that 60 percent of the plantations in the country will have this certification. At present, two of these companies have already implemented their environmental management systems, and will be subjected to a pre-audit process which will evaluate their degree of implementation of the standard, so as to give them the possibility to solve the weaknesses detected prior to certification process.

Of the total of ISO 14.001 certificates issued to different companies in the country, forest sector companies represent 50 percent of these certificates, which reflects the importance that this natural resource-based industry gives to environmental variables, which is also greatly valued by international markets.

Sustainable forest management standard: At the end of 1999, and in view of the international trend to demand fulfilment of these standards, CORMA made the different organizations related to the forest sector aware of the need to develop a national sustainable forest management standard that could qualify for international accreditation, for both plantations and the main species that make up the local native forest. A project in this area was implemented in mid-2000, and has the complete support of important institutions related to the forest sector and to the academic and scientific worlds. In order to ensure full participation of all these areas, a Senior Council was created which enables them to meet and manage the project.

To date, two drafts for the standard have already been drawn up, and have been submitted for public consultation. Consequently, the standard is reaching its final stage, after which it will go into the accreditation stage. More information on this standard can be found on the web site www.certforchile.cl