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WEEKLY NEWSLETTER
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Chile
Index
Although copper's relative importance declined in the
1970s and
1980s, it was still the Chilean economy's most important
product in
1992. The mining sector represented 6.7 percent of GDP in
1992, as
compared with 8.9 percent in 1985. In 1991 copper exports
represented 30 percent of the total value of exports, a
substantial
decline with respect to the 1960s, when it represented
almost 80
percent of total exports. Mining exports in general
accounted for
about 48 percent of total exports in 1991.
Since the late 1970s, the production of gold and silver
has
increased greatly (see
table 22, Appendix). The lead,
iron, and
petroleum industries have shrunk since the mid-1970s, the
result of
both adverse international market conditions and declines
in the
availability of some of these resources. With a combined
total
value of about US$4 billion, two of the largest
investments planned
in Chile in the early 1990s were designated for
aluminum-smelter
projects in the Puerto Aisén and Strait of Magellan areas.
Two developments in the copper sector were noteworthy.
First,
in the 1987-91 period there was a substantial increase in
the
output of refined copper, as well as a relative decline in
the
production of blister copper (see
table 23, Appendix).
Second, the
state-owned Copper Corporation (Corporación del
Cobre--Codelco),
the world's largest copper producer, still had an
overwhelmingly
dominant role (accounting for 60 percent of Chile's copper
output
in 1991). The so-called Codelco Law of April 1992
authorized
Codelco for the first time to form joint ventures with the
private
sector to work unexploited deposits. Thus, in a major step
for
Codelco, in 1992 it invited domestic and foreign mining
firms to
participate in four joint explorations in northern Chile.
Poreignowned private firms were to become increasingly important
as new
investment projects got underway. The heightened
importance of
these foreign private firms in large-scale copper mining
also
resulted from the international business community's
improved
perception of Chile and from a mining law enacted during
the
Pinochet regime that clearly established compensation
rules in the
case of nationalization and otherwise encouraged
investment in this
sector. Given this more favorable context, Phelps Dodge, a
United
States mining company, and the Sumitomo Metal Mining
Company, a
Japanese firm, signed a US$1.5 billion contract in 1992
with the
Chilean government to develop La Candelaria, a copper and
gold mine
south of Copiapó. The mine's potential production of
refined copper
was equivalent to about 10 percent of Codelco's entire
production.
Despite the decline in copper's importance, Chile
continued to
be affected by the vagaries of the international copper
market. The
high variability of copper prices affected the Chilean
economy,
particularly the external accounts and the availability of
foreign
exchange, in several ways. In the 1987-91 period, the
international
copper market was very favorable; for example, copper
prices in
1989 were 50 percent higher than in 1980. By May 1992,
however, the
price of copper had declined to about its 1980 level. The
government decided to counteract the effect of the
variability of
copper prices by creating the Copper Stabilization Fund,
which
worked as follows: whenever the price of copper increased,
the
government would direct a proportion of the increased
revenues into
the fund; these resources would then be used during those
years
when the price of copper fell below its "normal" level.
This
institutional development helped Chile at least partially
free
itself from the volatility of the copper market.
Data as of March 1994
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