Author: Antonio Guerrero

CHILE


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Chile's president Bachelet: Stimulating economic growth.

While high copper prices had maintained Chile’s economy as Latin America’s strongest, it seems the party is over as prices plummet and demand wanes. The South American country, the world’s largest copper producer, however, had put away more than $20 billion in windfall profits for a rainy day. Some of those funds are now being used to launch an economic stimulus program.


Cochilco, the Chilean copper commission, predicts copper prices on the London Metal Exchange will average $1.60 per pound this year and $1.50 in 2010, from a 2008 average of $3.15. Some analysts contend even Cochilco’s price forecast may be overly optimistic. Output will still be a hefty 5.5 million metric tons this year, up 3.7% from 2008, despite expectations for a meager 0.1% rise in global demand. Output is predicted to increase by a further 6% in 2010.

Sector analysts say Chile’s copper industry will remain profitable on account of low production costs and ongoing declines in input prices, though job losses and shrinking corporate earnings are inevitable. State-run Codelco, the world’s largest copper miner, expects to post a drop in earnings to just $600 million this year, compared with nearly $5 billion in 2008. Small and medium-size producers have already been forced to reduce production to adapt to declining orders.

The center-left administration of president Michelle Bachelet unveiled a $4 billion economic stimulus program funded by copper windfall revenues deposited in sovereign wealth funds. The program will create Chile’s first budget deficit in six years, at 2.9% of GDP, but gained multi-partisan support.It includes $1 billion to finance Codelco’s investment plan. Chile’s central bank predicts the stimulus package will fuel GDP growth of 2%-3% this year, though some economists say a possible contraction should not be ruled out depending on how much of a nosedive copper prices ultimately take.

Antonio Guerrero