Considering the issues described above, the Board believes that the balance of risks for inflation and growth is unbiased. However, on this occasion, the earthquake and tsunami introduce unusual uncertainty, particularly regarding economic activity data for March and April. Thus, the Board considers that the balance of risks for growth is biased downwards in the very short term. Accordingly, the Board will continue to use its policies with flexibility so that projected inflation stands at 3% over the policy horizon. Conclusions I would like to wrap up this presentation with some brief reflections. Fifty years ago, in May 1960, our country was also hurt by a big catastrophe. The earthquake in Valdivia caused the destruction of a large area in central-southern Chile, comparable only to the recent disaster. Human and material losses were aggravated by a severe macroeconomic maladjustment following the disaster. Weak fiscal accounts and monetary management led to neglect control of inflation, which soared in the following years. Our current situation is certainly different. Fiscal accounts are in order, and our monetary policy scheme, as I have already mentioned, has the virtue of allowing us to accommodate shocks without compromising the inflation objective. Although so far we have no statistics and preliminary data will be known in the coming days, it is possible that the immediate reaction to this tragedy will include a temporary increase in inflation and a sharp deceleration of economic activity, both as consequences of the major disruptions in productive processes and commercialization channels.

As a working assumption, the Board considers that the additional investment as a consequence of the catastrophe will be equivalent to nearly one percentage point of GDP in 2010. This effect will be concentrated in the second half of  4  BIS Review 61/2010  this year and will increase towards 2011. This considers both new investment and reallocated resources from other projects. The materialization of these investments will be favoured by their high marginal productivity and because part of the loss in net capital stock was insured. In the case of the public sector, according to announcements from the Executive, the baseline scenario considers that the structural deficit of 2009 was 1.2% of GDP and that structural fiscal balance will be attained towards the end of the current Administration’s term. Budgetary reallocations this year will amount to about $ million, while the rebuilding of destroyed public infrastructure will be spread out over four years. As a working assumption, the Board estimates that the burden of financing the public and private reconstruction efforts will be distributed equally among its various sources. Considering the economic situation leading up to the disaster together with its short and medium term effects, the Board estimates that during this year GDP will grow between 4.25% and 5.25%. This range is somewhat lower than was forecast in December. The downward revision for this year is based on the fact that the immediate economic effects of the earthquake and tsunami will exceed the increases generated by the reconstruction efforts (table 1).