Cablegate: Economic Woes at Chile's Northern Border

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FM AMEMBASSY SANTIAGO
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RUEHBR/AMEMBASSY BRASILIA PRIORITY 0464
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 1075
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UNCLAS SANTIAGO 000931

SIPDIS

E.O. 12958: N/A
TAGS: EIND PGOV ELAB SOCI EWWT EAGR EFIS CI PE BL
SUBJECT: ECONOMIC WOES AT CHILE'S NORTHERN BORDER

1. SUMMARY: Arica, Chile's northernmost city, faces
multiple economic challenges, including the 2000 kilometers
that separate it from Santiago and competition from cheaper
Peru, which is just a short drive north. This city, once
part of Peru, has the highest unemployment rate in Chile and
poverty rates that are among the nation's highest. Maritime
shipping--especially cargo from landlocked Bolivia--is a
major local industry, and the city's economic hopes are
pinned on agriculture, fishing, tourism, and mining. END
SUMMARY.

2. Poloff met with elected officials, law enforcement
officers, business leaders, press, academic officials, and
indigenous leaders in the Arica and Parinacota region of
northern Chile October 1-3. Septels will report on local
political issues and border challenges in the area.

Poor Arica: So Far From Santiago and So Close to Tacna
--------------------------------------------- ----------

3. Descriptions of Arica today cannot help but falter in
comparison to stories of Arica's heyday in the 1940s to
1960s. During that period, Arica's manufacturing-based
economy boomed, with local factories turning out televisions,
refrigerators, and processing fish for export throughout the
region. However, neither the Allende nor the Pinochet years
were kind to the area. Allende's economic policies
negatively impacted the whole country, while Arica was hard
hit by the lower tariffs ushered in by Pinochet.

4. Today, many local businesspeople lament that Arica
suffers from being so far from Santiago while being so close
to southern Peru. The 2000 km that separate Arica from the
nation's capital make shipping extremely costly and make
Arica a relatively unattractive place for Chilean industry.
At the same time, the proximity of Tacna, Peru--an hour's
drive away--hurts the local economy. Budget-conscious
Aricans spend their weekends in Peru enjoying that country's
cheaper goods and services. Meanwhile, nearly anything that
could be produced in Arica can be made for less in Peru,
which has much lower wages. Several Aricans compared their
city to San Diego with its inextricable link to less
prosperous and cheaper Tijuana, Mexico. Both Tacna and the
Chilean port city of Iquique, 300 kms south, are free trade
zones, leaving Arica in an isolated and economically
inhospitable location according to the Chamber of Commerce
president.

Arica Struggles with Poverty and Unemployment
---------------------------------------------

5. Although still relatively well-off when compared to
neighboring areas in Peru and Bolivia, Arica is one of
Chile's poorest regions, with a poverty rate of almost 19%,
five points higher than the national average. Poverty is
particularly common among children and the indigenous, with
24% of all indigenous Aricans and 22% of all children under
17 falling under the government's poverty threshold of
roughly USD 77 per person per month.

6. Arica struggles with the highest unemployment rate in the
country, according to former Intendente and current mayoral
candidate Patricio Zapata: 11.4% compared to the national
average of 7.8%. (Note: The most recent national
unemployment statistic collected by Chile's Central Bank was
8.2% for August. They had no statistics for Arica
specifically. End Note.) General Motors, which operated the
last of Arica's major factories, just closed its doors a few
months ago, laying off 600 direct employees and an additional
600 indirect employees, such as contractors. Adding to the
city's labor woes are the presence of undocumented Peruvian
workers. Under the Tacna-Arica Agreement, residents of
either city can cross the border and enter the other city for
up to 7 days without a passport or visa. While this
agreement is not supposed to be used to facilitate
employment, District Attorney Jorge Valladares estimated that
3,000-4,000 Tacnans work illegally in Arica and commute home
on the weekends.

Economic Hopes Pinned on Agriculture, Tourism, and Shipping
--------------------------------------------- --------------

7. Agriculture, fishing, maritime transportation, and
tourism are the backbone of Arica's economy. Significant
investment in irrigation has produced an agriculture boom.

Arica's busy port is important both to the city and to
neighboring Bolivia: 70% of the cargo shipped from Arica is
Bolivian. Intendente Luis Rocafull, the centrally appointed
regional governor, revealed that the Chilean and Bolivian
governments have agreed to construct a railroad linking Arica
and La Paz, to open in April 2010. Outside of these sectors,
many Aricans are self-employed entrepreneurs, supporting
themselves in activities ranging from operating a small chain
of home furnishing stores to informally (and illegally)
importing used American clothing to Tacna. (Note: Peruvian
law prohibits the importation of used clothing, creating a
thriving market for Chileans who smuggle it over the border.
End Note.)

8. Senator Jaime Orpis, a member of the conservative
Renovacion Nacional party, told Poloff that he plans to
present to La Moneda an economic development plan that would
promote mining, agriculture, and tourism in the region. He
predicts opposition to provisions that would open 40,000
hectares of environmentally protected land to mining and
objections to the water resources needed for additional
agriculture, assessing his tourism promotion component as
having the best chances of success.

9. COMMENT: Arica's economic struggles have hurt its pride,
particularly as the city seems to be forever comparing itself
today to its boom years of the 40s, 50s, and 60s. While the
city is struggling--particularly in comparison to the
relative prosperity of much of the rest of Chile--residents
display a remarkable loyalty to this northern outpost.
Citing a low cost of living, fabulous weather, low crime
rates, and family roots, many Aricans have opted to work at
mines 400 to 700 km away--spending several days in a row at
the mines and then returning to Arica for several
days--rather than leave their beloved city. That sort of
loyalty, combined with tourism promotion, a new rail link,
and growth in the agriculture industry, is likely to ensure
that Arica's economy will continue to putter along, althought
the city is unlikely to ever regain its former glory. END
COMMENT.
SIMONS

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