By MATT MOFFETT
SANTIAGO, Chile -- During the emerging economies' commodities boom a few years back, Chilean Finance Minister Andrés Velasco was a wet blanket at the fiesta. Chile, the world's largest copper producer, was reaping a bonanza from the quadrupling in the metal's price. Mr. Velasco insisted on squirreling away a large chunk in a rainy-day fund.
As the savings swelled above $20 billion -- more than 15% of Chile's economic output -- Mr. Velasco faced growing pressure to break open the piggy bank. In September, protesters barged into a presentation by Mr. Velasco, carrying an effigy of him and shouting, "The copper money is for the poor people."
The 48-year-old Mr. Velasco, wary that a flood of copper income could generate lending and consumption bubbles, stood his ground, even as the popularity of the center-left government withered. Latin American history, he cautioned, was full of "booms that had been mismanaged and ended badly."
Finance Minister Andrés Velasco built Chile's rainy-day fund.
Today Mr. Velasco looks like a prophet. Since the onset of the global economic crisis, copper prices have fallen by 50%, in line with the sharp decline in other commodities. Emerging economies that got too giddy in the good years are now coping with nasty hangovers. Soybean-dependent Argentina is facing a possible debt default while oil-rich Russia has been stuck bailing out banks and companies that got in over their heads in debt.
Thanks to Mr. Velasco's caution, Chile is now in a position to try to bootstrap its own recovery from the global recession. Mr. Velasco's preemptive moves have kept Chile's government from having to spend a single peso on bank bailouts. Having paid down foreign debt during the fat years, Chile is now a net creditor nation, with a debt rating that was upgraded by Moody's Investors Service in March.
And now Chile is pouring some of its copper savings into a massive stimulus plan, consisting of job-creating public-works projects, tax breaks for business, investments to keep mines operating and other goodies. Chile's plan is one of the largest stimulus packages in the world relative to the size of its economy. The Chilean program is the equivalent of 2.8% of gross domestic product, versus 2% in the U.S.
As a result, economists expect the nation's annual economic output to decline a very slight 0.5% this year, compared with much steeper declines elsewhere.
Juan Carlos Huaiquimil, who sells soft drinks from a pushcart, is the head of one of 1.7 million Chilean families, the poorest 40% of the population, which received cash stipends from the government in March. He says the money, equivalent to $70, was a godsend, helping pay for school supplies and uniforms for his three children. Last week, Chile announced another stipend will be paid in August.
"How many countries are in a position to give away money today?" he asks."........
...."Maligned for being passive during the boom, Mr. Velasco suddenly seemed to be everywhere all at once amid the bust. He flew to the U.S. in September to assess the financial damage first-hand. Then he began a series of meetings at home with leaders of big businesses and residents of small towns. And the tightfisted finance minister started singing a new tune about the copper savings. "The savings aren't to keep behind a window but to spend if necessary," he said.
Mr. Velasco, who had problems in Congress in the past, was able to get the $4 billion stimulus package through both houses of Congress, with unanimous approval, in just nine days in January. Chile will endure a mild recession this year, economists say. But the effects will be eased by a stimulus representing two to three times the amount most other Latin American governments are enacting, relative to GDP.
The package offers subsidies for businesses that hire younger workers, the group most hard-hit by unemployment.
To prod Chilean banks to lend money, Mr. Velasco pumped $500 million into state-owned BancoEstado, Chile's third-largest bank. Bulked up financially, BancoEstado nearly halved its consumer-lending rates and then broke with standard practice and stayed open for business one Saturday in March. The bank got so many customers that day its computer system was temporarily overwhelmed.
Chile is putting $700 million into a huge infrastructure program designed to create at least 60,000 jobs in road paving, airport upgrades and housing construction. The home-building plan, which features subsidies for middle- and low-income buyers, has prompted developers to start clearing land for a 400-unit development called Western Gardens not far from Santiago's airport.
One of the workers on the site is Roberto Urrutia. He had been unemployed since December, and had been so strapped for cash he'd had to cancel his telephone lines and borrow money for his children's schooling. "Putting my hard hat on is the greatest feeling in the world right now," he says.
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