MercoPress. South Atlantic News Agency

When cancelling sovereign foreign debt is not a good deal

Chile could pay off by the end of the year its full foreign debt with the surplus generated from booming international copper prices.

Chile's government foreign debt currently stands at 9.7 billion US dollars and by the end of the year the surplus which in the first quarter reached 5.8 billion US dollars is expected to climb to 10 billion US dollars.

The estimates are based on an average price for copper of 3.06 US dollars per pound, although it now stands at a bullish 3.60 US dollars but the average price in the London Metal Exchange is 2.59 US dollars per pound.

Anyhow in a scenario with the average price of 2.59 US dollars Chile could still cancel 61% of its foreign government liabilities. Public debt in Chile equals 8.2% of the country's GDP.

However not all economists and analysts believe this is an intelligent move. Felipe Morandé from the Chilean Construction Chamber and Rossana Costa from the conservative Libertad y Desarrollo think tank underline that what really matters is the "opportunity cost" of repayment.

This is particularly true if the surplus can generate higher interest payments than the country must pay for its credits.

According to Chile's budget office, 71% of first quarter's surplus, 5.882 billion US dollars, is invested in US dollar assets, of which 60% overseas.