Chile seeks capital

Press, 10 April 1978, Page 16

Chile seeks capital

By

ROBERT LINDLEY

in the “Financial Tinies”

Chile, with great natural resources but insufficient capital, is doing its utmost to attract overseas investment and create a stable climate for foreign companies. These companies which have invested in the country speak highly of the ruling military junta’s investment policies. One investor who praises Chile is Mr Jack E. Carter, managing director of Goodyear de Chile, a newlyformed subsidiary of Goodyear Tyre and Rubber of Akron, Ohio. There have been frequent spasms of political upheaval in Latin America since Goodyear opened its first plant more than 40 years ago. But “the balance here,” claims Mr Carter, speaking at the Goodyear de Chile plant 10 miles from Santiago, “has been good.” Like most of the Chilean firms nationalised under the Government of Dr Salvador Allende, from 1970-73, the plant which Goodyear has just acquired is running at far less than capacity and with far too many employees. Mr Carter has great faith tn what he called "the Chicago School kids.” There are 30 or so graduates from the University of Chicago School of Economics in Chile and more than two thirds of them are in the Government. The head of the country’s economic team, the Minister of the Treasury, Mr Sergio de Castro, although now 48 years old, is seen as a “Chicago School kid,” as are the Minister of the Economy, Mr Pablo Baraona. the President of the Central Bank, Mr Alvaro Bardon and the Assistant Director of the National Planning Department, Mr Miguel Kast. The “Chicago School kids” have charted Chile’s economic course since the very day of the Pinochet coup d’etat, on September 11, 1973, and they have had considerable success in reducing inflation — from 1147 per

cent in 1973 to 65.3 per cent last year — increasing growth and balancing the internal accounts. The moment may have arrived for a take-off in foreign investments.

If not, President Augusto Pinochet’s economic team can hardly be considered to have been at fault. A year ago, the regime amended the basic legislation governing foreign investments — a 1974 decree — allowing repatriation of capital after three years, and the remitting of profits immediately, and guaranteeing non-discriminatory access to the foreign exchange market. The logic behind this was put to me succinctly by Mr Kast: “We are a country of great human and natural resources but very little capital. So foreign investment is the obvious missing ingredient.” Foreign investment, clearly the key to sustained economic growth in Chile, lagged throughout 1977, the March amendment of the foreign investment decree not-withstanding. But at the end of the year came

Exxon’s decision to buy the La Disputada copper mining complex for SIO7M, with the likelihood that Exxon will invest a further SBOOM or S9OOM to expand La Disputada. Exxon’s investment, in hard minerals, was not the kind that will be rewarded with quick profits — within three or four years, as in the case of a tyre factory.

Exxon’s investment in Chile indicates that the company, the biggest in the world rated by assets, believes that political stability in Chile will continue for a long time. General Pinochet has promised to phase his regime into a civilian government. This government would have a fourth power added to the executive, legislative and judicial branches — a socalled “security power” — giving the armed forces the last word in any future civilian government. Therefore, the Communist Party would remain outlawed, something which generally pleases those who invest in Latin America.