Chile prepared but may feel global credit crunch

By Antonio Patricio de la Jara

SANTIAGO, June 17 (Reuters) - A global credit crunch is the biggest threat to Chile's financial stability, but its economy and solid banking system will help it weather turbulence, the Central Bank said in a report released on Tuesday.

In its latest Financial Stability report, the bank said a rapid slowdown in the global economy may complicate matters for exporters, hurting cash flow to finance financial obligations.

Chile, one of Latin America's few investment-grade nations, has seen strong growth in recent years on the back of a powerful export sector, driven by its copper, pulp, salmon and wine industries.

Last year, Chilean exports hit a record $67.644 billion.

"Diverse factors indicate the economy of the United States could already be in recession, or is marching decidedly toward one, which would have a negative impact on Europe and the emerging economies," the bank said in its report.

The bank also said that higher global inflation could translate into higher interest rates in chief economies, which would affect the cost of Chile's external funding.

"A materialization of these threats would imply a stretching in the availability and conditions of access - including costs - of external financing (for Chile)," the central bank said.

But the bank also said Chile is equipped to offset most of the potential threats.

The bank has been proactive and aims to boost foreign reserves and curb peso CLP=CL CHILJ strength by buying $8 billion on the currency market by Dec. 12.

The intervention, implemented in April after the peso appreciated some 16 percent year-to-date against the beleaguered U.S. dollar, achieved its goal of curbing the peso's strength, bringing it to close to 500 pesos per dollar these days compared to 430 pesos in March.

The central bank said Chilean companies on the local stock exchange are in a healthy financial state, but are less shielded from external shocks because of higher energy costs.

"The new external financial reality makes it necessary for credit standards to continue to be carefully reviewed," the central bank said. (Reporting by Antonio de la Jara, Editing by Chizu Nomiyama)