MercoPress. South Atlantic News Agency

Soaring Chilean peso controversy escalates

Chile's Finance minister Andres Velasco downplayed opposition criticism to the current appreciation of the Chilean currency against the US dollar and said the government is already addressing the issue with a tight savings and fiscal policy.

Similarly Velasco said that any possible intervention in the monetary exchange market is a decision which belongs to the Chilean Central Bank.

The soaring value of the Chilean peso which is edging closely to 500 to the US dollar (from 750 pesos in 2002/03) has set off warning alarms in several Chilean industries particularly those closely linked to exports. In 2005 the Chilean currency appreciated 12% against the US dollar and so far in 2006 another almost 5%.

"Above all I think we must not loose the perspective. What happens with the US dollar much depends on copper and regarding copper we've had very good news: price is high and this is good for Chileans because it means more income, spurring the economy, more jobs and more resources to finance social programs", said Minister Velasco.

As to the situation faced by the farm export industry (20% of Chile's overseas sales) which has moved the Senate Agriculture Committee to invite the Finance minister and the president of the Central Bank for a "friendly chat" to consider options to mitigate the impact of the strong peso, Mr. Velasco recalled that the government is already doing its share.

"As I've said before the Treasury is already doing its share because we're saving a significant portion of those incoming US dollars, because if we were to spend all the dollars coming into Chile we would have an even stronger Chilean peso. Therefore an orderly fiscal policy and strong savings policy are contributing to mitigate the impact", underlined Velasco.

When asked about allowing the Chilean pension funds to invest more of their resources overseas, Mr. Velasco said that "this is an issue to be considered with the social security review currently under consideration in Congress".

Members of the opposition have suggested that the Chilean pensions funds which hold assets over 50 billion US dollars should be authorized to invest a higher portion of their holdings overseas.

Mr. Velasco and Central Bank president Vittorio Corbo are scheduled to meet the Senate Agriculture Committee next week.

Luis Schmidt president of Chile's National Agriculture Society, the country's largest farmers association, has repeatedly accused the government of "total lack of sensitivity" towards the cheap US dollar challenge.

"I think there's no interest in adopting more drastic measures to correct the problem", said Schmidt who recalled that the previous administration of former president Ricardo Lagos had described the problem as "momentary" since copper prices in the first quarter of 2006 would begin to drop.

"The opposite has happened and the problem is now structural", insisted Mr. Schmidt who also recalled that the former Finance Minister Nicolas Eyzaguirre said before leaving office that "a US dollar at 550 pesos would be very harmful for Chile", and the situation now is "even worse".

"Let's not forget five million Chileans, directly and indirectly depend on agriculture", highlighted Mr. Schmidt.