Mining and Macroeconomic Stability in Chile
The Republic of Chile has a total territory of little over 756.100 square kilometers, which is somewhat larger than the state of Texas. Beaches and low mountains dominate the country’s 6.435 kilometers of coastline, while a central valley and the rugged Andes dominate the interior. Likewise, the country has a total population of 17.7 million citizens, about 90% of which live in an urban setting, notably the capital city of Santiago with 6.5 million inhabitants. In Chile, income from mining and related activities represented some 20% of the national GDP between 2006 and 2007. Similarly, during 2006 and 2007, the royalties and taxes derived by the government from activity in the national mining industry equated to approximately 8% of the Chilean GDP. Likewise, the national mining corporation, CODELCO, is responsible for about one-third of the country’s copper production, while the ten largest private mining companies, known collectively as the GMP-10, are responsible for the bulk of the remaining copper production. In this regard, both the public corporation and the private companies contribute a substantial amount of income to the state coffers.
Mining and Macroeconomic Stability in Chile
The Chilean government’s share of income from copper mining activities in the country went from some 13% between 2000 and 2003 to a peak of almost 37% between 2005 and 2008. Furthermore, it was the income derived from the copper industry, exported mainly towards East Asian markets, which maintained the country’s economic growth level positive during the years following the 2008 global financial crisis. In terms of trade, during 2015, Chile imported US$60.9 billion worth of goods and exported US$65.7 billion, resulting in a trade surplus of US$4.8 billion. As mentioned above, Chile’s main export in 2015 was copper in various forms, such as copper ore, refined copper, raw copper, and copper wire. That same year, copper products represented over 48% or approximately US$32 billion of Chile’s exports. Currently, Chile is a member of the Pacific Alliance, a commercial union alongside Mexico, Colombia, and Peru, that seeks to enhance the region’s economic ties with Asia Pacific. Nevertheless, Chile’s main trade partner is China. Chile sells 26% or US$16.8 billion of its exports to China and purchases 24% or US$14.7 billion of its imports from China. Other important trade partners to Chile are the United States, Japan, Brazil, Argentina, and the European Union.
The Chilean government, like others in the region, taxes mineral extraction on a progressive scale, meaning that whenever production accelerates or international prices increase above average levels they collect a larger percentage. Even though this structure has proven to be beneficial in many ways, Chile’s economy has become more dependent on the income from mineral commodities than it was 17 years ago. During the early 2000s, Chile’s mining sector accounted for about 5% of national income, while today that number is closer to 15%. Furthermore, in spite of being the world’s largest producer of copper, the Chilean industry struggles to influence the determination of international market prices.
(Read more about Agribusiness, Loans & China’s Economic Ambitions)