MercoPress. South Atlantic News Agency

Chile fights low U.S. dollar, plans coppers superplus investments investment in foreign markets.

Chile's labor intensive fruit, wine and salmon export industries received good news Thursday when government officials announced plans to combat the falling price of the U.S. dollar.

At the same time, the nation's Central Bank announced that it would intervene in the country's Peso to Dollar exchange rate ? but only if it becomes necessary.

The value of the U.S. dollar has dropped dramatically this past year - the direct result of an avalanche of U.S. currency brought to Chile by burgeoning copper profits. Copper, which accounts for nearly one half of Chile's foreign earnings, this week sold for US$3 per pound ? a unprecedented price fueled by China's enormous 10 percent annual GDP growth.

Chile's dollar glut has forced the dollar's value lower - to about 500 pesos to the dollar this week ? while Chile's labor intensive export industries remain saddled with peso-based overhead.

If there is to be immediate relief for exporters, it will come from the new measure announced Thursday: the decision to invest some of Chile's foreign currency earnings in overseas account and thus stem the U.S. dollar glut. Indeed, news of the government's plan spurred a one percent increase in the dollar's value on Thursday to 518.3 pesos to the dollar.

Finance Minister Andres Velasco said the government will fine-tune a bill that is already before Congress to create two new mechanisms to deal with the surplus income from copper.

"Part of that surplus will be saved in a fund that will allow us to guarantee payment of minimum pensions in decades to come, so that the pensions will be solidly financed," he said. The other modification to the bill will be to modernize Chile's copper fund. "Of course the idea is to be able to invest those resources where it is most appropriate, and that could be in the country or it could be abroad," Velasco said.

The Finance Minister said that investing funds overseas would benefit Chile's entire economy. "If we invest copper dollars abroad, perhaps then it won't depress the value of the dollar, and it will contribute to maintaining and increasing the competitiveness of the economy ? which is a win-win situation," he said.

Central Bank president Vittorio Corbo said that in the future, if the Central Bank decides that the exchange rate is not justified, "we are going to take part." Since September of 1999, Chile has had a free floating exchange rate system giving the Central Bank the right to take part in the exchange market.

Currently, however, the Central Bank has no plans to intervene. Vittorio Corbo insisted Thursday that the strong appreciation of the peso compared to the dollar is justified by high copper prices.

Velasco said the high price of copper is "very good news for Chile," explaining that it stimulates the economy, allows more investment, generates consumption, and "allows the State treasury to finance, among other things, more social programs."

The Finance Minister said that the key to making the most of the copper revenues is to maintain a responsible fiscal policy, and administer the economy with a mind towards benefiting Chileans now and in the future.

Velasco affirmed that the structural surplus rule of one percent of GDP will remain intact, saying that on May 3 the budget department's quarterly report will detail government plans for handling the excess copper income.

Chile's business leaders are divided about what the low dollar means for the country's economy. Ramon Aboitiz, the president of Sigdo Koppers construction company, is sure that the government will intervene. "It's clear that if the dollar reaches 400 pesos, there will be an economic fiasco in Chile," he said.

According to Francisco Perez Mackenna, general manager of the Quiñenco business conglomerate, exporters must brace for a strong peso. "The only answer is to be more efficient, to increase your value added and to take advantage of the low price of the dollar to invest in technology," he said.

Still, fruit and wine exporters continue to forecast dismal results for their industries if the peso remains at its current level, predicting that the biggest consequences would be for seasonal agriculture workers.

Juan Carlos Sepulveda, general director of fruit growers' association Fedefruta, alleged that the number of seasonal jobs for this year could decrease by as much as 100,000.

More than 52,000 Chileans have been laid off in these industries in the past nine months, and things may only grow worse.

By Geoff Burt - The Santiago Times - News about Chile