Chile's Post-Earthquake Economic Strength (The outlook for the rest of South America)

Despite a major earthquake and electoral squabbles, the financial picture is looking bright in South America. Here's our outlook for the continent's biggest economies.

On Feb. 27 Chile was hit by a massive 8.8 magnitude earthquake, one of the strongest in a century worldwide. The human toll has been relatively mild, with around 800 deaths, as the epicenter was far from populated areas and building codes and standards are very strict. However, the damage to the country's infrastructure is significant, and President Michelle Bachelet has called a state of emergency. The physical destruction includes damage to the country's roads, ports, commercial buildings and housing. Chile's sound macroeconomic policies under the Bachelet administration have created a savings fund, currently around $15 billion, which will allow the new government to face this tragedy with resolve and immediacy.

Upon the news that several mines belonging to both state-owned Codelco and privately owned companies had closed, international copper prices surged on March 1 during early trading in London, and receded after Codelco announced that it would be able to meet contractual obligations with production from unaffected mines. The halt in production was a result of power outages caused by the earthquake, rather than physical damage to mining sites. Chile's copper mines are located mostly in the northern part of the country, so affected mines and ports in the south should have a limited impact on copper delivery.

Meanwhile the Chilean peso (CLP) slipped by more than 1% in early trading on Monday, only to regain more than 1.5% from the day's low at market close the same day.

Bachelet had NOTHING TO DO with setting up the fund! It has been in place for MANY, MANY YEARS. Over the years the Socialists have even tried to raid the fund for pet projects.

Still, Chile's retirement system is something the USA should seriously consider. I remember Bush Jr. trying to push for something similar but by then, his political capital had been spent on Iraq and his popularity was plummeting.

Less government intervention has not been tried and found wanting... it has not been tried for a long time. Everytime it has been tried, the results are better, less costly and more prosperous for all.

Take rent control for instance, On January 1, 1997, Boston, Cambridge, and Brookline became the first major American cities to abandon rent controls since 1950. The process was not altogether voluntary. The initiative came from a statewide campaign organized by Boston and Cambridge property owners, who put up a state ballot initiative banning rent control. The initiative that passed in 1994 required immediate removal of rent controls.

The aftermath has been encouraging to those who believe that rent control can be abolished without widespread disruption. Tenant activists had predicted huge rent increases, mass evictions, and a surge in the homeless population if the regulations were abandoned. None of this has occurred. Formerly regulated rents have risen, but construction of new apartments has also begun for the first time in 25 years. Since the overwhelming majority of rental units were deregulated by 1995, and the rest by January 1, 1997, the worst is probably over.

To be sure, there have been individual cases of hardship that tend to attract a great deal of media attention. Almost without exception, these incidents involve tenants who have suffered a loss of income but still have been able to afford their apartments because of rent control. In one case, featured prominently in many newspapers, an elderly diabetic who had been unable to work for 10 years was losing his apartment in the Fenway district of Boston because the landlord was tripling the rent. [1] But tenants frequently are forced to move when they suffer loss of income. Rent control only delays the process and its abolition cannot be held responsible for every instance of tenant displacement. Boston property owners have alleviated the situation considerably by setting up a bank of 200 apartments around the city that are immediately available for such emergencies.

If less government intervention works in Chile and Boston, it will work everywhere else. Unfortunately we don't have the collective political will to do it.

The retirement system works VERY WELL and everybody in the country has a piece of the action. Publicly held and government licensed investment companies that manage the funds are limited to making no more than a 1.5% profit and must reinvest additional profits. The public may add as much money as they wish to their funds and move most of their funds around between the firms to try and get a better return. They MAY NOT remove funds to a level below the minimum required deposits or the profits on the minimum deposits mandated by law. They may take out up to 85% of the extra funds invested and most of the profits, up to 85% of the profits made on the addition funds paid into the fund.

I need to check the 85% number but it is close to correct.

Chile is divided into two worlds. There is almost no real poverty in the country but much of the south outside of the main cities is rural poor. Almost everyone outside the cities can grow enough to eat even if they may live in a “shack”. You drop a seed and it grows.

The eastern part of Sanitago is very 1st world. In the La Dehesa section of the city the average 3 bedroom home single family home sells for about $325,000 USD and the office towers and apartment blocks could be in any major city in the world.

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