Chile's Copper Surplus: The Road Not Taken (A)

Posted: 18 Mar 2012

See all articles by Laura Alfaro

Laura Alfaro

Harvard University

Dante Roscini

affiliation not provided to SSRN

Renee Kim

Harvard Business School

Date Written: November 19, 2010

Abstract

In 2008, Andres Velasco, Chile's Finance Minister, was under mounting criticisms over his fiscal policy. As the world's largest copper producer, Chile was benefiting from the rise in copper prices, which had more than tripled since 2003. Copper revenues translated into greater income for the government as Chile's biggest copper producer, Codelco, was a state-owned enterprise. Velasco had chosen to save the bulk of the copper revenues into two stabilization funds; by the end of August 2008, the collective amount represented more than 20% of Chile's GDP. Several critics wanted the funds to be used to improve the poor public education system, income gap, and other impending social issues. After all, Chile had one of the most unequal distributions of wealth in the world. Productivity was stagnant and economic growth had slowed down significantly since the 1990's. What should Velasco do amid growing public discontent? Was it really in Chile's best interest to keep saving the copper wealth?

Learning Objective: Debate the political and economic advantages, disadvantages, and challenges of stabilization funds in developing countries; study Chile's experience in the last three decades and the role of politics in encouraging economic growth and deterring economic crises.

Suggested Citation

Alfaro, Laura and Roscini, Dante and Kim, Renee, Chile's Copper Surplus: The Road Not Taken (A) (November 19, 2010). Harvard Business School BGIE Unit case no. 710-019. Available at SSRN: https://ssrn.com/abstract=2025013

Laura Alfaro (Contact Author)

Harvard University ( email )

Cambridge, MA 02138
United States

Dante Roscini

affiliation not provided to SSRN ( email )

Renee Kim

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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