LatinFinance - September/October 2017 - 36

ANDES
CHILE

Despite recent downgrades and tight public finances, the clouds
are finally clearing for Chile as copper prices rise and investors hope for a
business-friendly result in the November election. By Tom Azzopardi

Copper and more
In mid-August, mining giant BHP Billiton unveiled a $2.5 billion plan
to extend the life of its Spence copper mine in northern Chile. The
project, which could add 50 years to the mine's lifespan, is the largest investment announced in the country's mining industry in several
years. And, with copper prices rising and trading partners recovering,
the timing is propitious.
After copper prices slipped from highs of more than $4 a pound in
2011 to barely half that level last year, investment in mining collapsed.
Companies shelved projects and cut investment from more than $20
billion in 2013 to less than half that in 2016. Over the same period, the
industry shed almost 50,000 jobs. Other sectors, from construction to
retail, have felt the fallout.
The brusque change of fortune came as President Michelle Bachelet,
who was re-elected in 2013 having previously served from 2006 to 2010
worked to implement an ambitious reform agenda to reduce inequality
by raising corporate taxes to boost public spending.
Although a weaker peso increased the competitiveness of Chile's
other exports, including fruit, forestry and salmon, which have supported the economy when copper prices have slipped before, this time
investors held back.
"After the Asian financial crisis, when the peso fell, exports boomed,"
recalls Esteban Jadresic, chief economist and global investment strategist at Moneda Asset Management. "This time there has been a lack of
investment in the rest of the economy."
As a result, Chile's GDP has grown by an average of less than 2% during the past three years, compared to more than 5% from 2010 to 2013.
This year the economy came to a near-halt as forest fires in January and
February, followed by a 44-day strike at the Escondida copper mine,
the world's largest, cut GDP growth in the first six months to just 0.5%.
It was Chile's slowest half-year since the global financial crisis.
But now signs of recovery are finally beginning to appear.
For a start, external conditions are improving as global growth picks
up. Fears of a hard landing have eased in China, Chile's main trading
partner and buyer of half the world's copper, Chile's top export.
36 L ATINFINA NCE.COM - September/October 2017

FELIPE GUZMÁN,
CREDICORP CAPITAL

"THIS IS GOING TO BE
THE MOST AUSTERE
PERIOD FOR PUBLIC
SPENDING SINCE
THE 1990s"

With Chinese demand still strong and
almost no mines entering production this
year, the price of the red metal has rallied
sharply, trading above $3 a pound in August
for the first time in almost three years.
Regional trade is looking up as the
economies of Argentina and Brazil are
rebounding.
The Santiago Stock Exchange is reflecting
the hopes of a recovery, with the main IPSA
index hitting record levels in August. Strong
stock prices reflect not just better times in
the country, but a recovery throughout the
region, where Chilean-based companies -
such as fuels and forestry group Empresas
Copec, Latam Airlines and retailer Ripley -
are major investors.

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