Chile’s Boom And Bust

These days when you pick up a local newspaper, you’ll generally only find that most information is somewhat limited to what is happening either in your own country or perhaps even the US. The main reason for this is primarily due to the nature of the industry; the media will typically only print which is most likely to sell. That is just good business. However, the downside to this is that there are frequently some fascinating economic stories from around the world which most people may not be aware of for this reason. A prime example of this would be the success and demise story of Chile and in South America.

Chile Summary 

• Capital – Santiago
• Language – Spanish
• Population – 18 Million
• GDP Ranking – 38th
• Government – Democratic (Presidential)
• Main Industries – Copper, Food, Timber

The primary income source of Chile is from the mining industry, 80% of government revenue comes from exports of Copper.
Thus, Chile has experienced two decades of strong economic growth, especially in early 2000’s while the international copper price was at all time high level, which pushed Chile’s economy to the position of “tiger of Latin America.”

Since Financial Crisis 2008, the glory days of Chile has gone. Price of copper fell, the new tax law that initially aimed to reduce income disparity has fleed some investment out of the country.
GDP growth was stagnant, and sometimes it was even below zero (see chart below).

In the past year, the three major credit rating agencies have downgraded Chile’s sovereign debt since the Debt-to-GDP rate was raising sharping from 4.9% in 2008 to 23.6% in 2017.

People elected Mr. Sebastian Pinera, a billionaire businessman to guide them away from the current economic trap.

Mr. Pinera and his team introduced a Three-step plan to boost investment, productivity, and finally, GDP growth, also they are aiming to reduce the dependency on copper. The first step is planning to spend $15bn to build roads, airports, and railways, etc. You cannot boost productivity with out-dated infrastructure.

Will he successfully bring Chile out of the middle-income trap? We will continually keep an eye on it.

By Lanson Chen – Analyst

This article is written by a GO Markets Analyst and is based on their independent analysis. They remain fully responsible for the views expressed as well as any remaining error or omissions. Trading Forex and Derivatives carries a high level of risk.