Chile’s New Finance Minister Aims to Sustain Country’s Growth Trajectory

When Felipe Larrain takes over as Chile’s finance minister in March, he will be charged with creating one million jobs and speeding up the country’s recovery from the 2009 global financial crisis. Unlike most countries, Chile reported positive growth in 2009 and Larrain aims to keep the country’s economy on pace in 2010.

Larrain has said that he will reverse a longer term slowdown in Chile’s annual growth rate, which he blames on declining productivity, and help the country’s new president-elect, Sebastian Pinera, fulfill his campaign promise to increase employment. Larrain said that reviving economic growth is the administration’s main challenge. He has publicly said that creating 1 million jobs is feasible with growth of 6 percent a year. Larrain recently told reporters that “this country needs to regain its capacity to grow” and that his goal is to “double the growth rate.”

Recent estimates from J.P. Morgan, the investment bank, have forecast 5% growth for Chile in 2010.

However, even as he claims to want to kickstart the country’s economy into action, Larrain is not expected to make any radical changes to Chile’s highly respected economic policy framework. For example, he is expected to maintain the government’s long-standing “structural balance rule,” which requires saving excess revenue during boom years for use when the economy slows, Alejandro Puente, an economist at Banco Bilbao Vizcaya Argentaria SA in Santiago, recently told reporters.

Larrain will step into office a year after his processor, the Columbia University educated Andres Velasco, and Michelle Bachelet, then Chile’s president tapped US$4 billion of copper savings last year for tax cuts and extra spending to blunt the global economic crisis.

In a recent interview with Latin American Lens, Marpin Binghim, an economist and independent management consultant who specializes in Latin America, explained that “Chile is the most outstanding country in Latin America in terms of macro-economic policy management in the last twenty years.” Binghim added that “even though there is a global crisis, Chile has been able to tap into its rainy-day fund and smooth output, avoiding a major downturn.”

“Larrain’s appointment is a sign of continuity,” Ricardo Hausmann, director of the Center for International Development at Harvard University, told a reporter from Bloomberg in a telephone interview. In all likelihood, Chile’s nascent recovery will gather strength in 2010, and under the direction of Larrain, should fully recover by the year’s end.

As Production Increases, Peru Becomes World’s Second Largest Copper Exporter

As companies like Compania de Minas Buenaventura S.A. (Lima Stock Exchange:BVN) and Minsur S.A. (Lima Stock Exchange: MINSURI1) boost output, Peru has become the world’s second largest exporter of copper, according to data from the country’s National Mining, Oil, and Energy Society (SNMPE). After producing 1.27 million metric tons of the metal in 2009, Peru displaced the U.S. and now stand second only to its neighbor to the south, Chile, when it comes to copper exports.

Hans Flury, Chairman of the SNMPE, told reporters “Peru, after Chile, is the second [most important] producer of copper in the world, and we hope that we’ll be able to maintain [this position].” Peru is already the world’s largest exporter of copper, second largest producer of zinc, and third largest producer of lead.

Despite the slowdown in the world economy, investments in the mining sector, and revenues from export receipts helped Peru’s economy bounce back in 2009. The country’s central bank has estimated that Peru’s economy will grow by 5.5% in 2010, boosted no doubt, by high levels of precious metals exports.

Data from the SNMPE shows that mining companies invested US$2.2 billion dollars in projects in 2009, an investment which helped boost export receipts for metals to US$16 billion for the year.

In a recent report, Moody’s Investors Service said Peru appears “poised to grow the most and maybe surprise on the upside.” Mario Guerrero, an analyst at Scotiabank Peru S.A. (Lima Stock Exchange: SCOTIAC1) in Lima, Peru’s capital, recently told reporters that “Peru is going to post strong growth this year and … attract… investment from abroad.”

Boosted by precious metals exports, Peru should serve as a reminder to investors that all that glitters may not be gold. After all, some of Peru’s luster comes from copper and silver.