Bloomberg News

Pinera Pledges Tight Rein on Chile Budget as Copper Income Falls

June 07, 2013

Chilean President Sebastian Pinera pledged to keep a tight rein on expenditure as falling copper prices and rising costs slash income from the state-owned copper company Codelco.

The government will receive about $2 billion less this year from Codelco than it had planned under the budget, Pinera told reporters in Santiago yesterday.

“There is a big difference in fiscal income,” Pinera, 63, said. “That is a new situation. We are looking to design economic policies that are based on this reality.”

The budget drawn up last year included revenue of 28.2 trillion pesos ($56 billion), with a structural deficit of no more than 1 percent of gross domestic product. The structural budget anticipates a copper price of $3.06 a pound, compared with the $3.35 it has averaged in the past three months in New York. Chile is the world's largest copper producer.

Codelco’s contribution to the fiscal coffers is declining as labor and other costs rise, copper grades decline and prices weaken from as high as $4.02 per pound last year.

The company will “have to reinvent itself completely,” as old pits close down and new ones are opened, Pinera said.

“For Codelco to be able to do its mega investment projects it has to improve its productivity substantially, reduce its costs and better manage its environmental concerns,” he said.

Earthquake Recovery

Still, the decline in funds from Codelco pales next to the $16 billion the Chilean government has earned by boosting economic growth by an extra 2.5 percentage points over the past three years, Pinera said. That extra revenue also dwarfs the funds raised through this government’s two tax law changes, one designed to help rebuild the country after the 2011 earthquake and the other to boost spending on education, he said.

The government will take all those factors into account when drawing up a budget for next year, when a new government takes over, Pinera said. Under Chilean law, Pinera can’t serve consecutive presidential terms.

Chile’s economy will expand 4.9 percent this year after growth of 5.6 percent last year and 5.9 percent in 2011, according to the median estimate of 19 analysts in a Bloomberg survey.

To contact the reporter on this story: Philip Sanders in Santiago at psanders@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net


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