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My 2 Cents: We’ve Been Warned…

My 2 Cents: We’ve Been Warned…
March 20
20:22 2012

Yesterday, the Financial Times published an article about Latin America’s vulnerability to an economic downturn. The author states that our region is less prepared to withstand problems than before. That means that Chile is less prepared to weather an economic downturn (by their estimates) than ever.

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Copper exports make up a huge part of the Chilean economy. Photo: Didier Descouens

I want to focus on what can be done in Chile to lessen this vulnerability. Commodity-heavy countries like Chile appear to be the most vulnerable to a Chinese slowdown, and the focus of the slowdown are the metals producers. The research states that a 3% fall in Chinese growth could reduce commodity (copper) prices by up to 30%. Not good news.

The article goes on to say that large capital inflows in 2012 may create a recession or bank crisis. Maybe. I think not, but let’s say “yes” and plan for it. European difficulties could reduce lending to Latin America, which could affect liquidity. That being said, what do we do?

Nicolas Eyzaguirre, the IMF head of the region, says that Latin America has “dream conditions” and real development has to change from relying on commodities to developing infrastructure and education. I agree. The infrastructure missing in Chile is the mid-level manufacturing capability that the United States developed long before high technology came along. We need to train people in machine tools and techniques, and we need to do our own manufacturing. Instead of shipping all our copper overseas to be processed, let’s do it here.

How will we do that? Simple, but not necessarily easy. We must test our students and find those with the aptitude for this type of work, and get teachers in here to teach them. Let businesses develop the production for the markets that exist. Hire consultants who know how to find the markets. There are plenty of people who have the expertise.

Chile needs the will to fix this situation. Let’s show the world that we can do this, do it right and protect our economy.

The full article can be seen here.

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Ken Shields is a retired financial executive from the United States who has elected to settle in Chile. He teaches English and writes on business topics in I Love Chile as well as maintains several blogs, the main one being Poking the Dragon, and conducts business over the internet in several ways. He and his wife, Becky, moved here in September, 2010. You can email him at ken.shields@ilovechile.cl.
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