Chile – Venezuela: The Hidden Weakness of a Strong Economy

Chile – Venezuela The Hidden Weakness of a Strong Economy

Tzu-kung said, ‘If you had a piece of beautiful jade here, would you put it away safely in a box, or would you try to sell it for a good price?’ The Master said, ‘Of course I would sell it. Of course I would sell it. All I am waiting for is the right offer.’ Confucius, Analects, Book IX, 13.

Here is a quiz for you: Which South American nation:

a) depends on one single product for the majority of its exports? b) derives 35% of its total GDP from said product? c) has relied on the sharp rise in world market prices for its product to fuel growth? d) has not added significantly to its international currency reserves in the period? e) is often lauded as the LatAm model economy by world peers? f) may possibly be worried about forward macro effects of the recent drop of over 20% in world market prices for its main product?

If you guessed Venezuela then began to doubt your choice, this analyst would not be at all surprised. The answer is Chile, and the major product in question is copper.


Most people with interest in hard commodities know that Chile is the world’s number one copper producing nation, and it is also owner of the world’s biggest copper producer in state-run Codelco. What most people do not realize is the growing dependence Chile has on commodity growth due to the rise in price of copper in this decade. Copper has always been central to Chile’s economy of course, but in recent times this dependence seems to have become a veritable addiction. While revisiting the Chilean macroeconomic situation recently, we were immediately struck by the similarity between the positions of Chile and Venezuela, and began to wonder why Venezuela was the recipient of such bad press for its virtual petroleum monoculture economy while the growing dependence Chile has on copper was all but ignored by otherwise astute economists.

Firstly, some basic parameters. With a population of 15 million, Chile has a little over half the citizens of Venezuela. Therefore when we see the 2006 GDP figures for Chile at U$205Bn and Venezuela at U$176Bn (both purchasing power parity figures from the respective central banks) and GDP per capita at around U$9000 for Chile and U$6100 for Venezuela, it makes sense that Chile is classed the “richer” of the two countries. The general perception is that growth in Chile is of the “steady and sustainable” type, which is based on exports, direct foreign investment and demand from a developed internal economy.

As the above chart shows, GDP growth has been fluctuating per quarter around this 5% level, but has been far below that of Venezuela. Venezuela’s well-publicized growth has come almost entirely from the rise in oil prices, of course. But Chile’s growth has been largely dependent on copper in the same period, as the following chart begins to demonstrate.


Since 2004, the export mix from Chile has changed substantially. Previously, copper made up between 35% and 40% of total exports by revenue, but this figure has ballooned to 60% in recent months. The correlation between this rise and the spot price of copper is fairly straightforward.


And as the next graph further illustrates, copper is the clear driving force behind the rise in export revenues.


According to central bank figures, Chile obtains 35% of GDP from copper and copper alone, revenue coming from the state run Codelco and from tax revenues from private mining companies. Taxes on mining are comparatively low in Chile, with the base rate set at 17%. Added to this is a 35% repatriation tax on earnings for foreign mining companies as well as royalty payments that range between 0.5% and 5% of gross revenues depending on amount of production per company, tax regime and spot commodity prices. However the state also offers significant tax breaks to foreign companies in the form of asset depreciation credits. In recent times, Chile has also tightened up tax loopholes that previously allowed foreign miners to avoid the full burdens via transfer pricing to parent companies abroad.

Coincidentally, according to the Banco Central de Venezuela (BCV), 35% of Venezuela’s GDP also comes via its main export, that of oil. In the case of Venezuela, around 80% of revenues come via its state-run oil company, PdVSA, with around 20% currently made by private (and mostly foreign) oil companies. In the next chart we see the total percentage of export revenues that come via oil in Venezuela and copper in Chile, and although Venezuela’s dependence is clearly stronger, copper in Chile is playing catch-up. To recap, 35% of Chile’s GDP and 67% of its exports currently come from copper. 35% of Venezuela’s GDP and 88% of its exports come from oil. But despite this, the perception is that Chile has a far more diversified economy.


Exports alone do not tell the full macro story, of course. We shall therefore take a look at some other macro indicators to measure the two countries. When it comes to inflation, Chile runs headline figures that beat Venezuela easily. Although Chile’s inflation rate has recently crept up from under 3% to the present 3.7%, it is still well below the Venezuelan rate that has fluctuated between 15% and 20% this year. However the following chart demonstrates that, surprisingly, the real world effects of inflation have been more severe in Chile than in Venezuela. The chart compares salary growth of the two nations with inflation via the consumer price indices. As we can see, Salaries have kept up with and in fact beaten the price rises in Venezuela, but in Chile’s case the reverse is true.


Venezuela has also made the best progress in combating unemployment. The next chart shows the seasonally unadjusted rates for both countries, and Venezuela has managed to cut unemployment in half since the dog days of the PdVSA strike in 2003. Chile has also made progress on this score, but the progress has been more moderate.


But on the subject of international reserves, there is no contest. Venezuela has managed to grow its safety cushion of international reserves significantly in this period, and even allowing for the U$5Bn withdrawn from the system by President Hugo Chávez in early 2007 to fund social programs, Venezuelan reserves have more than doubled since January 2003. On the other hand, Chilean reserves have stayed stubbornly at the same level in all this time, despite the boom in copper prices that has been every bit as impressive as oil prices. However, for whatever reason Chilean international reserves never seem to command the column inches of the Venezuelan figures. This analyst remembers the shock and gloom stories from publications a reputable as the London Financial Times in May 2007, bemoaning the drop in Venezuelan reserves to U$24Bn and predicting all sorts of problems in the near future. Since then reserves have risen to the current U$30Bn level, and the press has been strangely quiet on the subject. One wonders why…….


So which country is more prepared for any downturn in international commodities prices? The above figures seem to suggest that Venezuela is better placed than many imagine to ride out any forward weakness, but Chile’s more diversified economy should also be taken into account. Although Chile is obviously dependent on copper, it is worth noting that exports of other products have increased in the period in question. As the next chart shows, exports in absolute terms of non-metallic goods have risen in the course of this decade as Chile is also a major exporter of products such as fish, fish meal, fruits, wines etc. Chilean exporters though are fighting an uphill struggle against a perpetually rising currency.


Notwithstanding, the progress made by Venezuela in accumulation of international reserves far outstrips that of Chile, even though the more southerly nation runs a type of current account with the IMF that allows it to deposit and withdraw funds at any given moment in an attempt to allow smoother expenditure over the irregular period of income from commodities.

As for that future, recent price action suggests that Chile’s main export is looking weaker than that of Venezuela’s. LME spot copper has fallen over 20% in recent weeks, but the rise of oil on world markets to near U$100/bbl levels hardly needs much further comment here. Present copper weakness has been fuelled by the 18% YoY production rise inside China, with many analysts predicting that the world’s largest consumer will not be buying so much at the world market in 2008. ICSG figures currently point to world supply and demand at an equilibrium, which differs sharply from the supply constraints in petroleum products that come more from limited capacity growth in refineries more than the supply of crude from the ground or geopolitical pressures.

It should be stressed that direct employment in Chilean mining and Venezuelan oil makes up around 1% of the total workforce of each country, so the effects of a downturn would not show themselves in any layoff measures from either sector. However, in the same way that PdVSA is the main wealth producer in Venezuela, the copper mining industry in Chile plays the same role. In a 2006 survey by Ecoconsult, 92% of wealth creation in Chile was confined to Codelco and two other major copper miners.

Politically, Chile has been coming under greater pressure from its populace to spend more of its copper windfall. Polls suggest that two out of three Chileans want its government to relax the saving rules with the IMF and spend more of the windfall on social projects. This makes sense in a country that is ostensibly prosperous, but in fact runs the second highest level of social inequality in the LatAm region.


We chose Venezuela as the mirror to reflect on the state of play in today’s Chile for two main reasons, namely the dependence on one single export for the ongoing well-being in the countries and the vast difference in perception amongst other nations towards the countries. The administrations of both countries profess to be socialist, but the government of Hugo Chávez in Venezuela has, rightly or wrongly and for various reasons, a polemic position amongst fellow nations, with many seemingly desperate for the time that its president is toppled due to a sudden drop in oil prices. However the sound reputation and good standing of today’s Chile is to a very great extent also highly economically dependent on a single export, but for whatever reason it does not grab the limelight in the same way as Hugo’s black gold.

We therefore wonder how much the ‘A’ rating S&P has on Chilean sovereign bonds has to do with purely economic concerns and how much political stability seeps into the equation. We are sure the stability (or the lack thereof) will be front and center in both countries if the price of copper and oil take a sudden and drastic turn for the worse in the next few years.

24 Responses to "Chile – Venezuela: The Hidden Weakness of a Strong Economy"

  1. Guest   November 26, 2007 at 7:29 pm

    Thank you for such a good analysis.Venezuela under Chavez is satanized by the mafia that rules the financial world. S&P, FMI, world bank now that they do not control Venezuela nor sack our natural resources.Chile on the other hand is praised for their political and finacial strategies which tells me that when the Americans praise you is because they are raping you. Who is taking the biggest profit from the copper? I believe is the transnationals.We know the feeling.Regarding oil dependeance, Chavez is presently investing heavily in the gas, petrochemical and agro industries which will take Venezuela out of a third world status.I hope you continue with this analysis year after year.Thanks again.

  2. Guest   November 26, 2007 at 10:03 pm

    Great analysis, please continue the oustanding work.

  3. Carlos Araya   November 26, 2007 at 11:06 pm

    truly a remarkable study (said from the perspective of a chilean national, living in Chile)much discussion about the topic took place last year in the public forum, when the copper “bonanza” started, as to the importance of keeping a reserve in preparation for a future depreciation. Altough funds were transfered abroad (at least according to the minister of finances), invested in stocks and bonds, most of the political class still tried to cash in the revenues, and spend money in dubious social programs (focusing more on inmediate political gain than economic austerity).We seem to forget the lesson history teaches us, when our Saltpeter monodependant economy collapsed in the first quarter of the XX century, and gladly acknowledge copper today as “Chile’s salary”. There’s even public discussion as to why we don’t finance research on “alternative uses” of copper, to mantain a need for the commodity, but little is actually done in the subject besides the discussion itself.And worst, whe take pride in the rise in the quality of our wines, fish and fruits (investing repeatedly in that), but take no measure against the sudden apreciation of the peso (that affects the little producers that don’t have conversion rate insurance).As dependant on foreing oil as we are, an international crisis that raised oil prices and reduce the demmand of copper (and of most of our exports) would affect our economy more than we care to admit, increased by the lack of proper public policy on energy production, and research of renewable energy sources.

  4. Tom Trebat   November 26, 2007 at 11:52 pm

    Mark, I think many of the commentators on your provocative article are reacting to what they perceive is unfair treatment of Chavez in the international press. They may have a point, but it is hard to accept the conclusion in your piece that Venezuela with an incoherent mix of populist policies and a fractured institutional setting is somehow better off than Chile which has grown consistently for more than 20 years. You rake Chile over the coals for being a NRA (natural resource abundant) economy, but look at how much they have accomplished over many years of reform and political consensus building. Unless everything we read is wrong, true success in internatational development is a matter of fiscal discipline, proper regulation of the financial sector, trade integration and openness, and institutional arrangements that permit sound macro policies to remain in place. Chile has made many mistakes and is reluctant to hold itself up as an example to the rest of Latin America, but it seems to have a far better chance of reaching OECD levels of development in 20 years than Venezuela. Your short-run cyclical analysis of balance of payments trends may soothe Venezuelan feelings, but it seems misleading in terms of where these two countries are headed in the long-run.

  5. michael   November 27, 2007 at 1:10 am

    1st of all i want to express my rage for the Chilean country it’s government and people, it’s unbelievable that Copper was Bolivias, all the copper reserves are found in the Antofagasta region which belonged to Bolivia and Chile went and stole it from them im Venezulean and I think of Chile as nothing more than pack of thives

    • Felipe   January 21, 2009 at 1:10 pm

      jejejeje, you don’t have any idea what are you talking about, Michael. Chile Won to bolivia the Antofagasta zone, in a war, started by Chile?, not my friend, started by Bolivia together with Perú.

  6. Paul Escobar   November 27, 2007 at 1:59 am

    Thanks for sharing that information Mark.I’ve always wondered about the Chile-Venezuela comparison.So when I had chance, I posed this popular comparison to Joseph Stiglitz. Stiglitz was the former Chief Economist of the World Bank. He currently teaches Economics at the University of Columbia. Here is the link, and Stiglitz’s response to the Venezuela-Chile comparison:……………………………………………… STIGLITZ:Chile has had impressive success over the past 15 years, after a major recession brought on by excessive faith in free market economics under Pinochet through insufficiently regulated banking. But there are alternative interpretations/explanations of that success. Chile did not follow many key elements of the Washington Consensus during its most successful years. It imposed capital controls. It only privatized part of its copper mines, and the privatized mines arguably did not perform better than the nationalized ones, though the profits were sent abroad, while the profits of the nationalized mines could be used in the nation’s efforts to develop. Government and foundations lay behind many of its successful development projects (such as its fisheries) – the kind of industrial policies that the Washington Consensus railed against. And unlike the Washington Consensus, Chile put considerable emphasis on social policies.Chile did two things that were part of the Washington consensus – it liberalized trade and it limited its government deficits. The lesson is similar to that of the successful countries of East Asia: Globalization can help bring prosperity, but countries have to manage globalization on their own terms, in their own way. Chile did this. The countries that followed the Washington Consensus mantra have, by and large, not done so well.It is the failures of these policies that have provided the impetus for the new movements in Latin America. Venezuela is the country in Latin America with the richest resources, but it is a rich country with poor people; before Chavez came to power, between two thirds and 80 percent of the people were in poverty. The riches of the country went to the rich, who did not want to share them with the vast majority of the citizens. Countries like Ecuador, Bolivia and Venezuela signed agreements with foreign oil, gas and mining companies that were generous to the foreign companies but cheated the country out of what was rightfully theirs.There is an ongoing debate about whether it was the result of corruption or incompetence of previous Administrations, or the consequence of pressure to privatize these resources quickly. But for the impoverished people of these countries, these distinctions may matter little. All they know is that their country is getting less than it should. The new governments have been able in many cases to cut a better deal. They know that they need the expertise of the foreign oil companies. They have been explicit in saying that these companies should get a fair return on their investment. Indeed, these companies are getting a very, very high return on their investment. These countries are only asking that they get a larger share.In many cases, these countries have put into place health and education policies that are already working, bringing health and education to the poor barrios for the first time. It is these successes that partly account for the popular support of these governments. Some critics label such policies as populist, but if populism results in the poor getting education and health services for the first time, isn’t that what democracy is supposed to produce?The countries are also putting into place longer-run growth policies. Some of these policies and projects make enormous sense. But how successful these policies and projects will be will depend partly on how they are implemented. It is too soon to make a clear verdict.

  7. Omer   November 27, 2007 at 4:52 am

    I concur: an incisive and thought-provoking analysis. It remains to be seen how both would fare in a possible global downturn. Venezuela has, so far, been able to overcome the debilitating national oil strike, political storms, disinvestment from some foreign majors resisting nationalization, etc. Considering Venezuela’s pump-priming and more interventionist and activist government, it seems perhaps more likely that it would weather a downturn (where stabilizing actions may show quicker results) better than Chile. What might change that calculus is if there were sweeping political change –in either country.

  8. London Banker   November 27, 2007 at 5:04 am

    Many thanks for a fascinating analysis, Mark. Should commodity prices collapse and budgets come under stress in Latin America, in parallel with a nasty recession in the USA perhaps, this will present a great opportunity for China to solidify its influence in the region through cooperative investment and resource deals.It is curious that the mainstream media can only see danger and risk from a country with improving employment, education and healthcare metrics because the crony capitalists and domestic elites have been sidelined from profiteering there. China, by contrast, needs to grow populous markets for its exports, and so may regard the “populist” policies which spread wealth and growth to the masses as consistent with its long-term strategic interests in expanding export growth beyond the OECD states.Democratising national resource revenues goes hand in hand with democratising political power in Latin America. China may have a much stronger interest in spreading democracy in the region than the USA ever had. That would be ironic, wouldn’t it?

  9. Christopher Neilson   November 27, 2007 at 8:57 am

    Mark, I usually find your posts very interesting. Especially those on the subject of Peru which I gather you have considerable knowledge. However, on this ocasion I think your data and interpretation is quite misleading. Partly because your numbers are incorrect and partly because you are reading to much in the cyclical numbers and placeing no importance on the volatility of those figures.I will address each one of your “questions” and “facts”a) depends on one single product for the majority of its exports? Before the copper boom, exports were diversified and growing in many diffrent categories. Obviously if the price of one componet shoots through the roof, the relative size grows. That is not a sign of dependance. What is a size of strength is that the other categories of exports have continued to grow in spite of the significant apreciation. b) derives 35% of its total GDP from said product?FALSE You might want to hire more competent assistants, to get your number right next time. The participation of mining (including copper) of Chiles GDP has been on average 8%, not the 35% you has misteriously conjured up. c) has relied on the sharp rise in world market prices for its product to fuel growth?Another false afirmation. Services has by far dominated the contribution to growth contributing close to 60% of growth of GDP. Mining is actually one of the lowest. d) has not added significantly to its international currency reserves in the period?Why would Chile do that if our exchange rate is flexible in the context of inflation targeting regime? What Chile has done is save almost all of copper income and paid its debts to better its finacial position. But that dosn’t show up as Central Bank Reserves now does it??e) is often lauded as the LatAm model economy by world peers?Of course, why not? Poverty has been cut by more than half, it has the lowest risk premium of the continent, inflation has been low AND stable, gowth has been moderate BUT stable and political stability is the halmark. Whats not to laud? f) may possibly be worried about forward macro effects of the recent drop of over 20% in world market prices for its main product?If copper and oil prices did go down, Chile has saved its money abroad and has planned its expenditures based on structural income. Im not familiar with the details of how venezuela goes about calculating is future costs and income but I have a hunch it would be more worried than Chile if commodity prices plunge.The argument later exposed on the unsatisfactory unemployment results in Chile is also ridiculous. Unemployment is 6%!! Lowest since the Asiean crisis. In conclusion I am greatly disappointed in your analysis. While Venezuela may o may not be doing things “correctly”, on the macroeconomic front, you cannot dismiss Chiles great preformance not only during the last year but over a decade now of consistant results.Lastly I invite you to read through the Monetary Policy Report Published by the central bank of Chile every three months can take a look at you know how to read Spanish

  10. Christopher Neilson   November 27, 2007 at 9:24 am

    Error in my previous comment(just have not gotten used to proof reading!) Unemployment in Chile was 7.7% in October. Lowest since 1998.

  11. Jorge Lorca   November 27, 2007 at 10:46 am

    I think either Mr. Turner didn’t have all the necessary information to write this essay or simply he confronted a tough deadline from the editor. The majority of the fallacies has been uncovered by the excellent response of Mr. Neilson. So, I want to say just two things: First, the chart about the copper as a percentage of export revenues doesn’t “demonstrate” copper dependence. I invite the author to see graph IV.2 in the last inflation report cited by Mr. Neilson (almost 0.5 points of the 6.2% growth YoY in last quarter is explained by mining).My second comment is about the legal framework and its impact on the chilean cycle. As the last and recent OECD survey on Chile says: “The correlation between the deviation of the price of copper from its long-term trend and the fiscal stance, measured by the cyclically-adjusted primary budget balance, appears to beweakening over time”. I invite again to Mr. Turner and its adherents to see box 1.1 and figure 2.1 in the OECD website and see that the copper price cycle is no longer the core issue for the country.Summing up, I think the comparison between both countries is quite rough and the challenges Chile is going to affront are related with its labor market, productivity and education. Sincerely,

  12. Anonymous   November 27, 2007 at 12:56 pm

    The validity of your argument is challenged by the following factual mistakes on the Venezuelan economy:(1) The oil sector represents 26% of the total GDP (2006), not 35% as you claim.(2) Average real wages (see the General Remuneration Index produced by the Central Bank) are still behind 1998 levels, in spite of the fact that the 2006 GDP is 22% above the 1998 level. If you analyze what happened with average real wages since the end of the expansion of 2000-2001, you will find that the participation of wages on the GDP decreased dramatically, vis-a-vis the relative remuneration to capital, reaching a minimum of 27% in 2005. Please check the Central Bank’s Economic Reports (2004-2006). In few words, exploitation of labor power increased under Chávez (i.e. I am not precisely a pro-oligarch right-winger).(3) The decrease of unemployement is largely explained by am artificial decrease of the activity rate via so-called social missions. You have to take this into account.Stiglitz, as usual, is talking bullshit about countries whose economy he does not care to study careffully.Yours,M.S.

  13. SDV   November 27, 2007 at 4:07 pm

    Dear Mark: Let me show you some statistic to see that the comparison is worthless. Becouse you are just watching the boom of the economic cycle. (As someone said before, maybe you should find another assistant)Average growth between 1998 and 2003:Chile: +2.9Venezuela: -2.6I´m sorry….If you would like to see a extensive period let´s see.Average growth between 1993 and 2003:Chile: +5.0Venezuela: -0.6I´m sorry again….last chance…Average growth between 1989 and 2006:Chile: +5.8Venezuela: +2.5I rest my case…Kind regard…SDV

  14. Guest   November 27, 2007 at 4:49 pm

    You’ve grossly misrepresented Chile’s foreign reserves. Since the beginning of 2003 foreign reserves have more than doubled to 34 billion USD. There is no sense in skewering you on your other points – others have beat me to it. I think you might have been better served by writing an intelligent article on the benefits and difficulties in maintaining a counter-cyclical fiscal policy in the face of countervailing populist sentiment. That might have been interesting. As it is, your effort at analysis is hardly worthy of the name.

  15. mark turner   November 27, 2007 at 8:33 pm

    hmmm….i wondered if this might happen.Thank you all for your comments, especially the critiques that made my wife laugh hardest.

  16. Christopher Neilson   November 28, 2007 at 9:51 am

    Mark, I don’t think you can just brush off the crtisisms made on your facts just by insinuating that this is just a polarized debate. There is something to that argument but I think an inteligent discussion would be better served if instead of “laughing” at what people say (something not very intelectual I might add, but nonetheless inevitable.) you addressed them and / or accepted them when relevant.I think your main point, toned down a little could survive a lot of the critisims. If you want to say Venezuela is not doing that bad and maybe they are not as vulnerable as they might seem, I think you can make a good case. I don’t think the comparison to Chile is all that useful for this, especially due to the difficulty in separating cyclical and long run results. Another note to think about is that Chile was growing post asean crisis when copper prices were at record low levels, so I think the dependance issue is irrelevant and moreover it this has been extensivly documented. Your main point

  17. mark turner   November 28, 2007 at 1:44 pm

    I completely agree, Mr Neilson. I was surely a little flippant last night (after a long day doing other things and not having time to even turn on a PC, never mind check into RGE). However, some of the posts did make my wife laugh, so thus i wrote.One thing i would like to make clear is that i am not making a bear call on Chile. We have a bullish stance on copper and all other hard commods going forward MT, and i fully expect Chile to continue to benefit from this so-called supercycle. The central thrust of the note was to argue the similarity betweem Chile’s dynamics and that of other latam nations. Venezuela was chosen for the reasons mentioned in the text, but the note is not really about chavezlandia or anything of the sort. However, i do think that Venezuela is a fair “mirror” to use. We need not dwell on the ‘whys’, as that should be self-evident. All i hope, sincerely and humbly, is that the note became a little more thought provoking for some readers due to the choice of VZ to reflect.

  18. Anonymous   November 28, 2007 at 11:01 pm

    Chile has been and continues to be “talked up” because of the fact that since it has adopted a neoliberal market oriented economy with the Pinochet dictatorship it was able to lift itself out of abject poverty (In 1980 it’s GDP per capita was at par with Nicaragua’s).The result is that most analysts and commentators, choose to ignore all the problems and limitations it has.So when someone “dare” to point these out, everybody act shocked and take it as some sort of attack. Not the case.I mean in this extraordinary international context, with the price of copper still so high, posting 4-5% growth rates it’s inexplicable, they should and could be growing at 7-8%.Another issue, is Chile’s export growth, it’s all because of the price of copper. Chile’s REAL export growth between 2003 and 2006, has been a mere 20%! Argentina, with it’s populist leaders and taxes on exports managed 32%!

  19. Fernando Paulsen   November 30, 2007 at 1:43 am

    As a Chilean and a journalist I have only words of praise for Mr. Turner. The article served as a timely provocation for some bright minds to come out and passionately expose their views. It confirmed me along the way that the so called economic science is greatly built on different readings of multiple data. Three months ago a very distinguished professor at the KSG in Harvard, where I am pursuing a graduate degree, compared Chile and Korea. The figures to characterized my country were not that different from those presented by Mr Turner. The professor´s argument was that there was a vital distinction between a country that has grown dependent on a few natural resources, and especially of copper, guess which?, from another country that made an option to engage its export sector into the manufacturing of highly technological goods, with lots of added value. In case of a recession or a price fall, the country dependent on natural resources will not have the capacity to move to another industries, but the technologically educated industries of the other country will adjust more easily to other products with great added value. Now, to compare Chile and Korea isn´t that bad, is it? Even if Chile comes worse off in the process. But comparing Chile to Venezuela will taste quite sour to some refined palatals. Because they might read the comparison as a sign of a job well done by the Venezuelan president, whose last prowess was converting the King of Spain in a world ringtone. Whatever looks favorable to Chávez nowadays must be the work of the devil. I personally did not read the article under any ideological prism. I simply hope Andrés Velasco, Chilean Minister of Finance, reads the article and orders a study to his staff to second look what he is doing, just in case there is something missing in the middle of all the hurras and clappings he hears from brilliant international colleagues. Sometimes the sound of so much enlighted adulation prevent countries to see their own reality with more focused eyes.

  20. Steve Jones   December 1, 2007 at 11:14 pm

    I have a question more than a comment, and it is somewhat off topic. I note that the graph of unemployment rates from 2000 to date reflects an annual cycle with peaks in the southern hemisphere winter for Chile. This suggests a significant segment of workers involved in agriculture. Yet my rump source of all things economic – the CIA Factbook – notes that agriculture results in only 5.1% of GDP.Combine that with the fact that while grocery shopping I find a large number of fresh fruit products from Chile in the northern hemisphere fall and winter, items which normally come from California in our spring and summer. Also, fruit such as citrus which ripen in the northern hemisphere fall and winter appear in our spring and summer labeled as grown in Chile.I can only conclude from these data that a significant number of workers in Chile are employed in agriculture, and that they are not paid very well. The cost of shipping – flying, in the case of fruit such as strawberries – must be significant, and the out-of-season Chilean fruit are priced comparably to the in-season fruit from California next door (I live in Arizona). I have no information on relative costs of land and water and other costs to growers in Chile or California, and recognize that these will be a factor.If anyone here can enlighten me I’d be grateful.

  21. Carlos Villalobos   December 3, 2007 at 5:38 pm

    This comparison is far to be exhaustive. In order to compare two histories, we must to be sure, that there is no “omitted variables” to control for. I propose to read the development indicators for education, health, poverty and income distribution. The macro-financial variables are only one side of the reality. I don’t consider appropriate waiting for economic catastrophes or to make analysis based on the Dollar reserves that the countries have, because nobody knows what is coming in the world economy certainly. I propose to call for a better education outputs inside the countries and more emphasis in R&D.In the other hand, we must take into account employment and unemployment (narrow and broad), and the real impact from the commodities on the economy. I can argue that the real growth impact of foreing cupper mines in Chile is almost insignificant due to the lack of spillovers or positive externalities in comparison with their scale of operations. For this reason would be appropriate to take a measure of these activities on real economy and don’t expect a lot of them. Sincerely I don’t believe in this kind of general equilibrium analysis; they are usually not very robust and can induce inappropriate policy response. Thank You!

  22. Flanker   December 10, 2007 at 8:54 am

    Another issue might be the timeframe of the data, unemployment in Venezuela is at 7.2%. Also Nominal GDP per capita is on par with Chile and the IMF predicts we will pass them in 08, PPP index calculations are still very old and outdated since all surveys show Santiago to be much more expensive than Caracas.Perhaps the most important point, Chile, despite producing more than 50% of the worlds copper, has shown no interest in controlling its price, weras Venezuela as a founding OPEC member has considerable influence in prices, evident by the recent reversal in increasing output.

  23. Marc Leon   February 6, 2013 at 5:17 am

    Very adequated the "analyst" doesn´t mention the Pinochet's era, The Free Market
    orientation begun with Pinochet after the coup with massive destruction of the
    productive capacity of the country, mass unemployment, and transfers of state
    own property to private investor (corrupt politicians and local oligarchs that
    support the dictatorship) making them enormously rich when the state property
    was giving away far low their real value and then creating the first wave of
    wealthy people on the "new economy",the whole enchilada ended with a massive
    crashed very like the one occurred in the US and Europe 2007. in essence the
    same mechanism were on motion then and now.
    The Chilean bubble crashed in 82 with terrible consequencies for the economy, in
    such magnitude that until the middle of the 90´s the purchasing power of
    the population had reached the level of late 1960's!! The private debt were in
    83-84 socialized in the same fashion the European are being socialized now. Passing
    the bill to the taxpayers.The return of "democracy" signified a more
    moderate policy, and more state involvement and more regulation this made the model more sustainable, but the inequalities in purchasing power remains the widest in Latin America.
    By the way, after almost 40 years of neoliberal experiment the Chilean economy is
    based on exports and what they export? Low added value raw material! Copper
    still remain as approx 70 % of exports! And the rest is fruits ,wine,
    agricultural products, mm. No industrial production with added value had
    emerged!! In 40 years!! And the country is own by foreigners! China begun
    their managed way of capitalism under the state strategic leadership 35 years
    ago and they are on the way to conquer the first place! Oooh , by the way…
    Venezuela beside to reduce poverty, increase the GDP steady after the economic
    sabotage of 2000- to- 2003 in which they lost 25 % of GDP, has launched
    industrialization process making today cars, computers, cell phones, new
    refineries, petrochemical complex, agro-industry and a technological revolution
    making their own software, launched two satellites and soon making their own
    drones and satellites… add to these the construction of hospital, schools and
    houses in order of 500 000 planed houses per year and you innocent and
    misleading people will see 8-10% growth per year…all make with national
    material and national industries!!