Finance Minister Velasco Confirms 2010 Chile Outlook, Shrugs Off Dubai

by Dave

Chile, a responsibly managed country where politicians don’t spend like drunken sailors. A definite outlier in today’s world! Mr. Geithner should pick up tips from Mr. Velasco. With yesterday’s presidential elections in Chile leading to a prospective victory by Mr. Sebastian Piñera – a candidate of the right, in a run-off election next January, seems like the outlook for market-friendly policies is even brighter.

As finance minister, Velasco used a three-year copper boom to cut borrowing to the point where the country is a net creditor for the first time since independence from Spain 200 years ago. By the end of 2008, Chile had stashed away $20 billion in its stabilization fund, allowing it to draw $8 billion this year to plug a budget gap and pay for extra spending.

Fiscal policy was beautifully managed; other countries should pay more attention to what they’re doing,” Arminio Fraga, former president of the Brazilian central bank, said yesterday in a telephone interview. “You can’t be pedal-to-the- metal on fiscal policy the whole time — that’s the lesson. In order to do that when you need to, you have to accumulate some credit, which Chile has.

Since President Michelle Bachelet’s government took office in March 2006, the country’s main stock index has gained 63 percent in U.S. dollar terms
, beating the MSCI Emerging Markets Index’s 23 percent rise and the Standard & Poor’s 500 Index’s 15 percent slide.

Chilean sovereign bonds in dollars returned 34 percent in that time, compared with 21 percent for the region as a whole, according to indexes compiled by Merrill Lynch & Co. The cost of insuring Chilean government bonds against default using credit- default swaps is comparable to Austria, Japan or Greece and cheaper than Spain.

“Chile has been doing a good job,” Jim Rogers, the chairman of Singapore-based Rogers Holdings, said in a Nov. 25 telephone interview. “They’re not going out and spending the windfall and driving the country into the ground. The economy is basically copper and agricultural and I’m very bullish on both.”

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