MercoPress. South Atlantic News Agency

Controversy over strong Chilean peso persists

Chile will only act to mitigate the appreciation of the local currency under exceptional situations because the current conditions surrounding the Real Exchange Rate, RER, of the Chilean peso are the most favourable in the last fifteen years, said Central Bank president Vittorio Corbo.

Addressing the Senate on an issue that has become highly controversial since the Chilean peso in 2005 continued to appreciate against the US dollar, hindering export industries, Mr. Corbo argued that the appreciation of the Chilean peso in the last two years is closely associated to an extremely favourable international situation, "trade exchange terms are considerably above their historic average and the cost of external financing has reached historical lows".

In spite of the fact that the RER has appreciated 8% above the average level of 1995/98, the "current fundamental variables are on average far more favourable than those of the last fifteen years", added Mr. Corbo.

However the president of the Central Bank did admit that the RER during the last few weeks has reached levels that "could only be coherent under the presumption of the current favourable external conditions remaining as such for a long time, which does not seem to be probable".

Mr. Corbo finally praised the benefits of the current floating currency system which has steadily improved macroeconomic conditions "during the last fifteen years".

In the last three years the US dollar in Chile has dropped from 760 to 515 pesos.

The Chilean Manufacturing Confederation concerned with the low price of the US dollar and its impact on Chilean manufactured exports advanced several proposals to make the functioning of the transable sector of the economy more adequate.

One of the first suggestions is to convert the budget structural surplus (linked to the international value of copper) into US dollars or other foreign currencies.

Applying to molybdenum a by product of copper refining, a similar 1% structural budget surplus clause. Molybdenum exports in 2005 reached over a billion US dollars.

Increase the cap for Chilean pension funds investments overseas which currently stands at 30%.

"Adequately diversifying risks of pension funds must be addressed with a medium and long term vision, with resources invested in several countries", recommends the Confederation, since 6% growth is not permanent.

However Chilean Economy Minister Nicolas Eyzaguirre rejected the arguments behind the proposals arguing that exporters should do as the government: "save money when copper prices are high, so when the hard times come we can keep the same level of social expenditure in spite of lower prices for the metal".

Mr. Eyzaguirre said that the manufacturing confederation alleged loss of a billion US dollars because of the US dollar at 515 pesos is not precisely the way to consider the situation since "they could be asking the rest of taxpayers to subsidize them".

"These are always partial figures, since not a word has been said when extraordinary profits are made, for example during the Argentine and Brazilian crisis the US dollar in Chile was valued at 760 pesos", highlighted Mr. Eyzaguirre.