By staff reporter Zhao Hejuan, from San Diego

From Caijing Magazine

Wine and copper spurred Chile’s economic growth in recent years, but the current global economic crisis may put the development model of Chile, as well as other resource rich Latin American countries, to a test.

Current account surpluses of Latin American countries will tumble from US$ 27 billion in 2007 to US$ 8 billion in 2008, according to the Economic Commission for Latin America and the Caribbean. The World Bank also lowered its economic growth forecast of Latin American countries in 2009 to 2.1 percent.

Chile will end a period of 4 to 5 percent growth and settle with 2 to 3 percent in 2009, said Jose de Gregorio, governor of Chile’s central bank.

With Chile as the world’s largest copper producer, the slump of commodities prices has taken a toll on the national copper company, Codelco. A high-level management official of Codelco told Caijing that the company’s profits in 2008 are expected to total US$ 5.5 billion, half of those in 2007. The downturn will continue in 2009, said the source, who prefers anonymity.

Like other major resource producers facing a falling market, Codelco has decided to cut production.

Besides copper, tourism, wine and real estate also took heavy blows from the crisis. Developers have resorted to unconventional measures to boost sales, including a free tryout period as long as half a year for potential home buyers.

Currencies of Latin American countries have sunk since October, and depreciation continues today. Also in free fall are their stock markets, many of which lost half their paper value as foreign investors withdrew in panic.

The IMF estimates that a 10 percent price reduction in the international commodities market will wipe out the economic growth of Latin American countries by 0.75 percent. 

Some countries are better-prepared to ride through the storm with cash they stocked during the economic boom. Brazil plans to use US$ 1.6 billion to promote export, and has injected tens of billions of dollars into its currency market. The Chilean government set up a US$ 21 billion special fund with the windfall from high copper prices, and now it can tap the money for its expansive fiscal policies in 2009.