JUNE 1982 - VOLUME 3 - NUMBER 6
Chile's Mining Code Fails to Draw Investors
by Mary Helen Spooner
SANTIAGO - Shortly after over. throwing the socialist government of Salvador Allende in September, 1913, the military junta headed by General Augusto Pinochet began to court some of the very firms whose holdings the socialists had nationalized just two years previously.
As a symbolic tombstone to the Allende government, Pinochet unveiled in 1974 one of the most generous foreign investment statutes in Latin America: a removal of limits on the remittance of profits and capital, a fixed 49.5% tax on investment for up to 30 years and equal treatment for both Chilean and foreign companies.
Late last year the Pinochet regime decreed a new mining investment code designed to offer further incentives to potential investors. The law stops short of granting outright ownership to foreign companies working Chilean mineral deposits and mines, but offers generous concessionary rights and compensation in the event the firms' operations are nationalized by some future Chilean government.
All this might tend to confirm the worst fears of Chile's decimated Left regarding the relations between the multinationals and the Pinochet regime. But a closer look at the situation reveals some surprising paradoxes.
The new mining investment code ' was delayed for the better part of a year while two rival sectors within the Pinochet regime debated mining policy.
On one side were members of the regime's civilian economic team, the, "Chicago Boys," so nicknamed in view of the fact that several of them had studied at the University of Chicago, home of Milton Friedman and other free market theorists.
On the other side were the more nationalistic hardliners, mostly military officers -who tended to view Chile's mineral resources as a national security concern.
Some of the more dogmatic Chicago Boys had argued in favor of denationalizing the state copper corporation, the Corporacion Nacional del Cobre de Chile (CODELCO), which was formed in 1975 from Chile's four largest mines. Chuquicamata, formerly owned by Anaconda, was nationalized in 1971, along with the El Teniente (owned by Kennecott), Salvador (owned by Anaconda) and Andina (owned by Cerro Corporation) copper mines. Chile's smaller mines and mineral deposits were offered to private investors after the 1973 coup, but CODELCO emerged as one of the most efficiently managed and profitable state enterprises in Latin America.
The move to denationalize CODELCO was successfully fought by the nationalists, who also opposed any further liberalization of Chile's foreign investment statute. This internal debate delayed the new mining code's publication until early this year.
For all the controversy, however, the new mining code appears to have had little tangible impact. No new mining projects have since been approved, and the most recent investment project of note - a $1.5 billion proposal by Getty Oil and Utah Mines to develop a copper deposit in northern Chile - was approved months before the new investment code was published.
A number of foreign minerals exploration companies, including Amax, Phelps Dodge, Conoco, Amoco and Anglo-American, are looking for new mineral deposits; yet low world mineral prices and Chile's relatively high operating costs are dampening their enthusiasm. And there are persistant reports that some of the mining companies already in operation may withdraw from Chile at the end of this year if the current slump in mineral prices does not end.
Early this year, Exxon's Chilean subsidiary denied reports it was pulling out of La Disputada, its $2 billion copper mining project north of Santiago, but acknowledged that it was reassessing its operations.
For the Pinochet government, foreign mining companies' failure to respond to the new investment laws deepens the severe economic problems besetting the country, which has seen industrial production fall at a rate of 14% in January and February.
In response to the economic crisis, Pinochet reshuffled his cabinet on April 23, boosting the number of nationalist military officers holding ministerial level positions, and apparently giving the ministry of the economy, now headed by General Luis Danus, a greater role.
In the key Ministry of Finance, Pinochet replaced Sergio de Castro, a disciple of Milton Friedman and a staunch adherent to free-market economic policies, with another "Chicago Boy" - Sergio de la Cuadra, Chile's former central bank president.
It's too early to tell how. significant this cabinet shift may be. Officials insist that no major changes in the free market model are contemplated, though "a greater flexibility" will be exercised in carrying out the policy.
But with the economy plunging, pressure will mount on Pinochet to yield to the nationalists and lessen the influence of the free market economists from the Chicago school. De la Cuadra could be removed, one knowledgeable source said, "if the economy doesn't recuperate in six months."
Mary Helen Spooner is an American journalist based in Santiago, Chile.