Monday, March 15, 2010

Chile’s Economy Strong Enough to Recover from Devastating Earthquake without International Aid

The earthquake and subsequent tsunami that ravaged Chile a few weeks ago has left an estimated $30 billion in damages. The amount is almost twice as much as economists have estimated for Haiti’s recovery from its devastating earthquake two months ago. University of Chile economist Joseph Ramos stated that "[R]ight now Chile isn't drawing at all on international relief funds." Chile’s new President Sebastian Pinera has stated that Chile does not need international aid or generous loans to recover, “we will draw on foreign credit with moderation." This is very impressive.

Chile’s economy is very strong, thanks in part to robust profits that previous Chilean presidential administrations saved away in better times. Chile has several sovereign wealth funds totaling in the billions from the sky-high copper prices over the years. Chile is the world’s biggest copper producer, accounting for about 35% of global output. As a result, Chile will be able to finance much of its own reconstruction from last month's disaster. President Pinera is, in part, benefiting from the financial acumen of Chile former President Michelle Bachelet, Chile's first woman president. During former President Bachelet’s administration, Chile's Government continued to save profits from record-high copper prices. The savings is currently totaled at approximately $11 billion of surplus revenue from copper exports. Chile Government’s multi-presidential-administration-savings-plan is perhaps a concept that “developed” countries should learn especially given the economic turmoil that has existed in the U.S. and Europe during the past two years. The concept of preserving the future by making sound fiscal decisions in the present is not a philosophy that is practiced in many "developed" nations. We need only look to the massive national debts of North American, and Europe nations for confirmation.

Carlos Felipe Jaramillo, the World Bank's director for the Andean region, applauded Chile’s financial condition, “I haven't seen a country in such a favorable position to address a natural disaster in a long time. They are in fabulous standing with us and have a tremendous capacity to respond." In addition, to Chile's $11 billion in surplus, Chile’s private sector is expected to recover more than $3.5 billion in insured damages. Furthermore, Chile also has strong domestic financial markets on which it can rely, before it needs to turn to foreign loans — and when it does reach out to international creditors, Chile can attract low interest rates with its excellent fiscal record and minimal debt.

President Pinera has made it clear that despite Chile’s sound economic footing, reconstruction will not be easy. He has called for "tremendous austerity" in government spending. Nonetheless, Chile’s ability to recover from such a devastating natural disaster without or limited international assistance should be applauded, studied and emulated as a model for developing and developed countries a like.

1 comment:

  1. I so happy to read that Chile's economy is so strong. We do not often read that Latin American Countries are prospering. We often hear the opposite. Thank you Professor Cabrera Pierre Louis for sharing this very important information.


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