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Case | HBS Case Collection | March 2010 (Revised May 2013)

Chile's Copper Surplus: The Road Not Taken (A)

by Laura Alfaro, Dante Roscini and Renee Kim

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Abstract

In 2008, Andres Velasco, Chile's Finance Minister, was under mounting criticisms over his fiscal policy. As the world's largest copper producer, Chile was benefiting from the rise in copper prices, which had more than tripled since 2003. Copper revenues translated into greater income for the government as Chile's biggest copper producer, Codelco, was a state-owned enterprise. Velasco had chosen to save the bulk of the copper revenues into two stabilization funds; by the end of August 2008, the collective amount represented more than 20% of Chile's GDP. Several critics wanted the funds to be used to improve the poor public education system, income gap, and other impending social issues. After all, Chile had one of the most unequal distributions of wealth in the world. Productivity was stagnant and economic growth had slowed down significantly since the 1990s. What should Velasco do amid growing public discontent? Was it really in Chile's best interest to keep saving the copper wealth?

Keywords: Developing Countries and Economies; Economic Growth; Metals and Minerals; Investment Funds; Policy; State Ownership; Wealth; Chile;

Language: English Format: Print 25 pages EducatorsPurchase

Citation:

Alfaro, Laura, Dante Roscini, and Renee Kim. "Chile's Copper Surplus: The Road Not Taken (A)." Harvard Business School Case 710-019, March 2010. (Revised May 2013.)

Related Work

  1. Supplement | HBS Case Collection | March 2010 (Revised May 2013)

    Chile's Copper Surplus: The Road Not Taken (B)

    Laura Alfaro, Dante Roscini and Renee Kim

    In 2009, Chile's Finance Minister Andres Velasco's fortunes had been reversed. His fiscal policy that had come under attack just a year ago had been used to finance a $4 billion fiscal stimulus package amid the global economic downturn. Velasco was now Chile's most popular minister. However, the future of Chile's fiscal policy was questionable with the election of a new president, Sebastian Pinera, the first conservative leader to lead Chile in two decades.

    Keywords: Developing Countries and Economies; Financial Crisis; Financial Strategy; Financing and Loans; Policy; Government and Politics; Chile;

    Citation:

    Alfaro, Laura, Dante Roscini, and Renee Kim. "Chile's Copper Surplus: The Road Not Taken (B)." Harvard Business School Supplement 710-020, March 2010. (Revised May 2013.)  View Details
    CiteView DetailsPurchase Related
  2. Case | HBS Case Collection | March 2010 (Revised May 2013)

    Chile's Copper Surplus: The Road Not Taken (A)

    Laura Alfaro, Dante Roscini and Renee Kim

    In 2008, Andres Velasco, Chile's Finance Minister, was under mounting criticisms over his fiscal policy. As the world's largest copper producer, Chile was benefiting from the rise in copper prices, which had more than tripled since 2003. Copper revenues translated into greater income for the government as Chile's biggest copper producer, Codelco, was a state-owned enterprise. Velasco had chosen to save the bulk of the copper revenues into two stabilization funds; by the end of August 2008, the collective amount represented more than 20% of Chile's GDP. Several critics wanted the funds to be used to improve the poor public education system, income gap, and other impending social issues. After all, Chile had one of the most unequal distributions of wealth in the world. Productivity was stagnant and economic growth had slowed down significantly since the 1990s. What should Velasco do amid growing public discontent? Was it really in Chile's best interest to keep saving the copper wealth?

    Keywords: Developing Countries and Economies; Economic Growth; Metals and Minerals; Investment Funds; Policy; State Ownership; Wealth; Chile;

    Citation:

    Alfaro, Laura, Dante Roscini, and Renee Kim. "Chile's Copper Surplus: The Road Not Taken (A)." Harvard Business School Case 710-019, March 2010. (Revised May 2013.)  View Details
    CiteView DetailsEducatorsPurchase Related

About the Authors

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Laura Alfaro
Warren Alpert Professor of Business Administration
General Management

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Dante Roscini
Professor of Management Practice
Business, Government and the International Economy

View Profile »
View Publications »

 

More from these Authors

  • Teaching Note | HBS Case Collection | May 2006 (Revised November 2019)

    To Float or Not to Float? In Pursuit of the Chinese Dream

    Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel

    Keywords: China;

    Citation:

    Alfaro, Laura, Rafael M. Di Tella, and Ingrid Vogel. "To Float or Not to Float? In Pursuit of the Chinese Dream." Harvard Business School Teaching Note 706-060, May 2006. (Revised November 2019.)  View Details
    CiteView DetailsPurchase Related
  • Case | HBS Case Collection | November 2019

    Floating the Exchange Rate: In Pursuit of the Chinese Dream

    Laura Alfaro and Sarah Jeong

    In the decades following 2005, China faced significant financial challenges. Inflation spiraled upwards and China’s economy stagnated in the wake of the Global Financial Crisis. The country’s leaders took an interventionist approach to weather the storm, controlling capital and exchange rates. These actions raised criticism from other nations, and in 2017 the U.S. initiated the U.S.-China Trade Wars, which enforced tariffs and requirements for increased transparency. As implications of the trade wars remained uncertain, many wondered whether the central bank would introduce further discreet steps to change the yuan. Would China’s currency appreciate as substantially against the U.S. dollar as predicted by economists? And when would further change occur? The stakes were high; a freer yuan float would impact groups within and outside of China very differently. Would China’s currency then be allowed to depreciate or appreciate if fundamentals required it?

    Keywords: exchange rate; inflation; debt; Currency Exchange Rate; Inflation and Deflation; Borrowing and Debt; China;

    Citation:

    Alfaro, Laura, and Sarah Jeong. "Floating the Exchange Rate: In Pursuit of the Chinese Dream." Harvard Business School Case 320-039, November 2019.  View Details
    CiteView DetailsEducators Related
  • Case | HBS Case Collection | November 2019

    Chile: Unrest in the Copper Nation

    Laura Alfaro and Sarah Jeong

    For decades, Chile was heralded as South America’s pillar of stable economic growth. Chile was the world’s largest producer of copper and enjoyed a long period of over 30 years of world demand for its resources. In 2013, the commodity boom ended and was replaced by a slow period of economic activity. By 2019, a culmination of factors had contributed to widespread protests. Major streets in Santiago were shut down due to demonstrations by workers across 20 ports. Mining unions urged the government to lift the state of emergency and end curfews. It was unclear how these stoppages would affect copper production and prices in a country that produced a third of the world’s supply.

    Keywords: copper production; protests; Economic Slowdown and Stagnation; Metals and Minerals; Production; Price; Mining Industry; Chile;

    Citation:

    Alfaro, Laura, and Sarah Jeong. "Chile: Unrest in the Copper Nation." Harvard Business School Case 320-051, November 2019.  View Details
    CiteView DetailsEducators Related
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