Chile’s rainy day has come.
The South American nation prudently set aside billions of dollars in excess profit from state-owned mining in the event of economic crises. Now newly inaugurated President Sebastian Pinera has served notice he plans to dip into the piggy bank to finance reconstruction after last month’s magnitude 8.8 earthquake.
Pinera, who was inaugurated Thursday, told members of the nation’s Congress this week that he would funnel some of the money into a new reconstruction fund to help repair the estimated $30 billion in damage caused by the Feb. 27 quake.
Chile is among a few countries, including Norway and Kuwait, that have set aside funds generated by the sale of natural resources to act as a hedge against the vagaries of global commodities prices and provide a buffer to economic crises.
In Chile’s case, the Copper Stabilization Fund, which totals about $11 billion, has been fed since the early 1990s mainly by profit from copper, the nation’s leading export. Copper prices have tripled since 2003, benefiting the state-owned Codelco mining company, the world’s largest producer and the principal contributor to the fund.
The stabilization fund is an obvious resource for the government as it addresses the staggering losses from the quake, which killed about 500 people. The reconstruction cost estimate is equal to 75% of this year’s government budget and more than one-sixth of the country’s annual economic output.
Not included in the damage estimate is lost economic activity caused by the wreckage of businesses, factories, the energy grid, roads and other infrastructure.
A power outage Sunday that affected as much as 90% of the country gave Chileans a preview of what to expect. Although electricity has been restored, Energy Minister Ricardo Raineri said the grid is delicate and it could take six months to repair it.
In addition, Chile’s largest oil refinery, the government-owned facility in the state of Bio Bio, was heavily damaged and will be closed for months, Mining Minister Laurence Golborne said. He said it would cost the state-owned oil company tens of millions of dollars to import the gasoline that the refinery normally produces.
Chile’s wine industry, which had $1.4 billion in exports last year, was also hard hit, with fermentation and storage tanks holding 33 million gallons of wine, or 12.5% of the nation’s production, ruined, said Rene Merino, president of the Wines of Chile trade association.
Although insurance will cover most of the losses suffered by the 250 exporting winemakers, Merino said the big losers could be the industry’s 80,000 workers, 80% of whom work for wineries in the quake zone. He said some jobs could be lost.
Chile’s fund is infrequently tapped. Last year was one of those occasions: Then-President Michelle Bachelet used $6 billion to pay for social programs, such as pension, housing and medical benefits during the global economic crisis.
Kraul is a special correspondent.