The Chilean earthquake of 27 February 2010 an overview

This report highlights some of the key macroeconomic implications of the massiveearthquake of magnitude 8.8 Mw that hit the Chilean Coast on 27 February 2010 and attempts toprovide some prospective lines and reconstruction scenarios based on currently available officialinformation.The usual caveats apply and the information provided here should be used with caution asthe scenarios presented in this report were simulated by means of comparative static techniquesand lack the dynamics and sectoral inter-linkages of more sophisticated and complex modellingtools. However, they serve the purpose of presenting different reconstruction scenarios andfinancial gaps which are built upon different assumptions and levels of government expenditureand public debt. The report does not aim at providing a full-fledged assessment of the totaldamage and losses of the catastrophe since the primary information is not yet available and theemergency, rescue and search activities are still under way.For the past thirty five years, ECLAC has cooperated with governments in Latin Americaand around the world in assessing —with the methodology developed by ECLAC itself— thesocio-economic incidence of climate and other extreme events that result in catastrophes. One ofthe main findings and characteristics common to all natural events is that damage estimatescalculated shortly after the disaster tend to be significantly overestimated as opposed tocalculations which follow a thorough methodology based on consistency-stock-flow analysistechniques and a sectoral inductive bottom-up-approach.In principle, one can identify several sources of loss from natural events. For the purposesof this report and on the basis of the evaluation criteria established by ECLAC, we distinguishbetween direct damage, defined as damage to assets that are impaired, immobilized or destroyedand to stocks, including final goods, goods in process, raw materials, inputs and spare parts; andlosses (sometimes referred to as indirect damage) defined as a disruption of economic activitywhich may lead to loss of income or production, a curtailment of the flow of goods and servicesthat cease to be produced or provided from the moment a disaster occurs and potentially until therehabilitation and reconstruction process has been completed.A number of empirical studies and evaluations conducted by ECLAC as well as otherresearch and academic institutions on the impact of natural disasters distinguish between shorttermand medium-term impacts. The most common finding of these studies is an immediatecontraction in output and a worsening of external and fiscal balances as well as an increase inpoverty and short-term spikes in price levels. The final impacts are ultimately country-specificand depend on the economy's structural conditions and more decisively on the economic policymix undertaken to tackle the short-term effects of the disaster and the medium-term challenges ofthe rehabilitation and reconstruction process.This report is divided into five sections. The introduction is followed by Section 2, presentsthe general description of the earthquake. Section 3 summarizes the potential macroeconomicimpacts of the disaster along with alternative reconstruction scenarios. Section 4 presents ageographical and regional view and the final section summarizes the closing remarks. There aretwo annexes, with information of other disasters in Chile and their cost, and maps with informationon social variables in the disaster areas.