Chilean election: favorites have opposing bids for copper, the country’s biggest product

The presidential elections of Chile this Sunday (21) should result in a second round between Gabriel Boric, from the left, and José Antonio Kast, from the far right. Candidates differ on a number of points, one of which is how to deal with the main product of the Chilean economy: copper.

THE commodity it currently accounts for almost 50% of all exports in the country, and Chile accounts for approximately a third of world production. In the country, the biggest mining company is the state-owned Codelco, in addition to a number of foreign companies and smaller national companies.

But it was not always so. Chile’s political history is mixed at times with the history of copper production, something that could happen again after the results of the 2021 election, whose second round will take place on December 19th.

For specialists, however, the price of copper should not be impacted by the election result. The commodity follows a wave of high in the international price with the growth in demand, especially the China, which already positively impacts the GDP from Chile and should be the main influence for any variation.

The relationship between Chile and copper

The extraction of copper in Chile began in the 1930s, and since then the commodity has always had a great influence on the country’s economy. If in the 20th century the biggest buyers were U.S and Europe, in the 21st century, China became the leader in imports.

“Copper is essential for being an excellent conductor of electrical energy, especially important for civil construction. The country that builds the most cities, infrastructure, is China. The demand for copper there is gigantic, greater than that of any other country”, says Wagner Iglecias, a professor at EACH-USP.

According to him, the country has always had disputes over appropriating the fruits of the wealth that copper trade brings. Exploitation was initially carried out exclusively by foreign companies, until the pressure for nationalization of production increased.

That struggle came to a head in the 1970s, when Salvador Allende of the Socialist Party won the presidential election. With the victory, he created the Corporación Nacional del Cobre de Chile, Codelco, which concentrated production and nationalized foreign companies.

Allende was killed shortly afterwards in a coup d’état, and Chile would enter a dictatorial period under Augusto Pinochet.

“Chile becomes a laboratory of neoliberalism, and copper has been partially privatized. Chile today has a relative degree of development, and this is due to copper revenue. But it’s a very unequal country. Access to health, education, social security is complicated for the majority of the population, with low State investment”, says Iglecias.

Copper ore
Chilean economy benefited from copper exploration /REUTERS/James Akena

Amir Lebdioui, a researcher at the London School of Economics and Political Science, says that copper revenue boosted government budgets, being essential for investments in education and other social areas, along with infrastructure.

“But the country’s dependence on copper exports brought challenges, and it is risky considering the country’s macroeconomic stability,” he says.

“When they are dependent on a mineral commodity, this affects other sectors, because a lot of money comes in and this does not encourage investments in other areas, especially industry, so they import a lot of industrialized products”, says Iglecias.

For Francisco Lira, a master in economics from UFPR, the Chilean governments have identified this dependence and have sought, in recent decades, a diversification of the economy. However, she was still thinking about commodities, with more space for food and other minerals, especially lithium.

Chilean government data show that, in 2021, the country has already exported just over US$ 3.5 billion in copper. The second most exported product, salmon, totals US$ 500 million, followed by wood, cellulose and iron ore. The main destinations for Chilean copper are China, the United States, the Japan and Brazil.

According to Iglecias, this wealth helped to develop the infrastructure, a certain market, but it was not well distributed. And this is a debate even in elections”. Lebdioui also cites environmental issues related to mining, in particular the high consumption of water and carbon emissions, which have also been discussed in the country within the context of combating climate changes.

The impacts of the election

Lira says the Chilean presidential election comes at a time when the country is facing major changes. The first is to carry out a constituent Assembly, which has 2/3 of the members furthest to the left, concerned with investments in health and education. In addition, for the first time since redemocratization, the favorites are for parties that have never been involved in other electoral clashes.

Thus, he classifies the electoral scenario as “unusual”, but a consequence of a series of protests in 2019 against inequality and poverty in the country, with a dissatisfaction with the political class.

In this scenario, Boric and Kast appear as more extreme alternatives, but the two candidates have divergent views on many issues. One of them is copper exploration.

“Kast wants to further privatize copper exploration, go public with Codelco and partially start its privatization. Boric, on the other hand, talks about raising taxes for private mining companies and has a green agenda, introducing new technologies in mining to reduce the environmental impact”, says Iglecias.

For Lira, Kast has focused on themes such as immigration and customs guidelines, with a conservative discourse, but has left economic matters aside, which makes it difficult to know exactly what its proposals are.

Boric talked more about the topic. He plans to carry out a pension reform, changing the current capitalization system, and a tax reform, charging more taxes on the rich, in addition to providing subsidies to Codelco.

“Boric is very concerned about social security and social issues, which resonate since 2019. Kast, on the economic issue, says it is one more opposition to the Bachelet government, which made a tax reform, raising taxes, to finance subsidies to public higher education. He doesn’t want to make a lot of changes in the economy,” says Lira.

José Antonio Kast, candidate for president of Chile, leads the polls / Ivan Alvarado/Reuters

In addition to the favorites, two candidates also have a chance of reaching the second round. Senator Yasna Provoste represents the centre-left, from the same party as the former president Michelle Bachelet, while Sebastián Sichel represents the centre-right, of the current president Sebastian Pinera.

In both cases, however, a victory for both would represent a continuity with the management of previous leaders of their parties, more moderate and without reforms considered more daring.

Candidates also need to deal with demands from employees of mining, who demand better wages and working conditions. How easy it is for the winner to implement this proposal also depends on the outcome of the legislative elections, which take place on the same day.

“If one of them wins, but Congress is closer to the defeated one, it is difficult to implement the agenda”, says Iglecias. On the other hand, the professor affirms that the country’s new Constitution must be more progressive and demand greater investments in education and health. It will need to pass a referendum, which makes the scenario uncertain.

Left candidate for the Chilean presidency, Gabriel Boric to go into the second round / Reuters

“Copper is a controversial issue, the country depends on it, the economy is not so diversified. With polarization, candidates avoid these controversial issues. It’s like talking about soy and pre-salt in Brazil”, says Iglecias.

Regarding prices, Lira says that Chile has a relevant share of world production, “but not enough to impose very large market power. It does not have what Brazil had in 1920, 1910, which had a monopoly in the production of coffee”.

According to him, the country even tried to form a version of the Organization of Petroleum Exporting Countries (OPEC) for copper, but the idea failed.

“The market works in a way that no country imposes its will on the price of production, unlike what we see in oil,” he says.

Lebdioui says the candidates’ policies “could have some effect [nos preços] in case they impacted the world copper supply”, affecting in some way the Chilean production. However, he believes that, today, the main factor influencing copper prices is global demand, especially China, and prices should only fall if this demand declines.

“Regardless of the result, there may be changes that will be discussed and even voted on, but it’s a long way, and it’s difficult for the market to price this well,” says Lira.

About Abhishek Pratap

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