Chile posts record fiscal surplus in 2007

Chile's policy of socking away windfall copper profits pushed 2007's fiscal surplus to another historic high, leaving it in a solid position to weather global economic volatility, the government said on Wednesday.

Government budget director Alberto Arenas said Chile had a fiscal surplus of US$14.453 billion last year, worth a record 8.7 percent of gross domestic product.

"We have good news," Arenas told a news conference. "We are in an extraordinary position to calmly confront the uncertain financial scenario we've seen in recent months."

Chile's robust fiscal surplus has been bolstered by global copper prices that have held at near record levels since 2006 in what many are calling a commodities super cycle. Windfall profits from sales of copper, a key component to infrastructure expansion, have been strictly managed by the Chilean government under policies focused on saving for leaner times. "It's not particularly surprising. It reflects the strict application of the structural surplus rule," said Pablo Correa, an economist with Santander Investment. In 2006 Chile's fiscal surplus hit 7.7 percent of GDP -the heftiest percentage in Latin America. Chile is the world's leading exporter of copper, which accounts for over half its exports and is enjoying booming prices on the back of ravenous demand from China.

The surplus effect

Economists said the strong surplus was the result of efficient management of the government budget, and would strengthen Chile's stability and risk standing."

"It's good news for the country given the international scenario. It leaves Chile's public sector in the position of being a net creditor ... and is good news for markets," said Correa. Correa, however, said that Chile's policy of depositing most of the surplus in stabilization and reserve funds abroad in non-peso currencies meant would limit the effect in Chile.

"These funds are being invested abroad. The flows don't enter directly in the economy. So it won't generate an effect in the exchange rate or local bonds," Correa said. "The main effect is macroeconomic, how the country's solvency compares with that of other markets."

Reuters, January 30