Chile to draw on stabilization fund for reconstruction

BOGOTA, Colombia — Chile’s rainy day has come.

The South American nation prudently set aside
billions of dollars in excess profits 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 devastating magnitude 8.8-magnitude
earthquake.

Pinera, who was inaugurated March 11,
told members of the nation’s congress this week that he will funnel an
unspecified chunk of the money into a new Reconstruction Fund to help
repair the estimated $30 billion in damages caused by the Feb. 27 quake.

Chile is one of a handful of countries that include 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 for future economic crises.

In Chile’s case, the Copper Stabilization Fund totaling about $11 billion
has been fed since its founding in the early 1990s mainly by huge
windfall profits in copper, the nation’s leading export. Copper prices
have tripled since 2003, benefiting the state-owned Codelco mining
company, the world’s largest copper producer and the principal
contributor to the fund.

The stabilization fund is an obvious resource for
the government in light of the staggering losses the country faces
after last month’s quake, which also killed about 700 people. The
reconstruction cost estimate is equal to 75 percent of this year’s
government budget and more than one-sixth of the country’s annual
economic output.

Not included in the $30 billion
damage estimate is lost economic activity that will be caused by the
wreckage of businesses, factories, energy installation, roads and other
infrastructure.

A power outage Sunday that affected up to 90 percent
of the country gave Chileans a preview of what to expect in coming
weeks. Although electricity has been restored, Energy Minister Ricardo Raineri warned that the grid is in delicate condition and that six months could be needed to restore it.

In addition, the nation’s largest refinery, the
state-owned facility at Biobio, absorbed extensive damage and will be
closed for months, according to Mining Minister Laurence Golborne.
He told reporters that it will cost the state-owned oil company tens of
millions of dollars to import the gasoline that Biobio normally
produces.

Chile’s wine industry, which generated $1.4 billion
in exports last year, was also hard hit, as fermentation and storage
tanks holding 125 million liters of wine, or 12.5 percent of the
nation’s production, were ruined by the quake, said Rene Merino, president of Wines of Chile trade association.

Although insurance will cover most of the losses
suffered by the nation’s 250 exporting wine-makers, Merino said the big
losers could be the industry’s 80,000 workers. Four of every five of
those workers were employed by wineries located in the impacted zones,
he said, and some of those jobs could be lost.

Chile’s stabilization fund is infrequently tapped. Last year was one of those occasions: former President Michelle Bachelet used $6 billion to pay for social programs including pension, housing and medical benefits during the global economic crisis.

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