Chile: Like Fine Wine and Burnished Copper

• History
• Culture
• Economy

The grand monolithic statues on Easter Island in the Pacific Ocean are believed to have been sculpted as a tribute to Chile’s earliest settlers. Spanish invaders subjugated native inhabitants in the 16th Century and laid the foundation of modern-day Chile.

When Isabel Allende, Chile’s most famous literary export, writes about her spindle-shaped country as a “land of mystery and magic,” it is easy to believe her.

Chile has the driest desert in the world along with enormous glaciers, fjords, beaches, volcanoes, as well as spouting geysers. It is also one of the slimmest countries in the world — 2650 miles long and just 221 miles wide at its widest point. Indeed, this unique geographical shape has inspired many a poet to call it ‘the slender lady.’ Imposing natural barriers mark the nation’s boundaries — the Atacama Desert separates the country from Peru in the north, the Andes Mountains create a frontier with Bolivia and Argentina to the east, and the chilly waters of the Drake Sea point to Chile’s proximity with Antarctica in the south. The expanse of the Pacific Ocean to the west completes the country’s geographic diversity.

A land of spectacular beauty, Chile today is on the threshold of a brave new emergence, having moved away from the excesses of the dark days of dictatorship. Thanks to far-reaching social changes and economic expansion, as well as an abundance of natural resources, the country is already considered an emerging leader in the region and is looking to play a greater role on the world stage.

History

Early beginnings

Chile’s geographical peculiarities and remoteness are a matter of pride and identification for its people. The very word ‘Chile’ is said to be derived from the native Aymará word ‘chilli’ meaning “the land where the earth ends,” and this sense of physical isolation is often glorified in popular legends. A famous legend goes that in the beginning of time, God created the world and when he was finished, he had some leftover pieces. He had some rivers, valleys, glaciers, deserts and mountains. Instead of letting them all go to waste, God put them all together and cast them to the most remote corner of the earth, and thus Chile was born!

Many Chileans today refer to their country as ‘the end of the world’ but it is a world where, if certain hard-to-confirm evidences are to be believed, human habitation dates as far back as 33,000 years. But officially, the oldest inhabited site in the Americas is located at the Monte Verde site in Chile, where a 12,500-year-old child’s footprint left behind in a marshy field was discovered in 1998.

Chile’s most famous earliest culture is that of the nomadic Chinchorros who lived in Northern Chile between 5000 BC and 3000 BC and who left behind the world’s oldest-known mummies. Another important civilization was the Atacameño culture, which flourished in Northern Chile between 2000 BC and 1000 BC. This civilization too left remarkably well-preserved mummies. The Incas had a short period of rule in Northern Chile but their invasions were fiercely resisted by the southern Picunches and Mapuches, tribal groups that inhabited what are now the regions in north and south-central Chile, respectively. But it was the Spaniards who invaded Chile in the real sense of the word.

The march of the Spaniards

The Spanish invasion in the mid 16th century changed the course of history in Chile, and indeed of many parts of South America. Though relatively few in number, the invaders from Western Europe were ruthless and determined, and they subdued Chileans by a combination of exploitation and the threat of warfare. Thus, the all-conquering Spaniards established Santiago, the current capital of Chile, in 1541. However, barely six months after the city was founded, the Mapuches, or Araucanians as the Spanish called them, struck and razed almost the entire settlement. The Spaniards, though, clung on and by 1553, many more settlements had sprung up and the foundation for a new society had been laid. Gradually, the Spaniards attained supreme dominance in Central Chile and established a strict system of control in Northern Chile (then in Peru).

Eventually, children of mixed parentage began to outnumber the indigenous people, who reduced in numbers rapidly because of large-scale epidemics and warfare. Gradually, there emerged a Chilean creole class — the Mestizos or people of partly white ancestry — who sowed the first seeds of the fight for independence from Spain. On September 18, 1810, at a town meeting in Santiago, Chile took a tentative step towards independence when a group of locally elected leaders replaced the governor appointed by the Spanish. Therefore, September 18 is celebrated as the Chilean National Day.

The Santiago Stock Exchange, which has been in business for over a century now, perhaps best exemplifies Chile’s resilience.

Freedom!

The cry for independence from Spain grew louder across South America by the 1820s. Jose de San Martin, one of the great heroes of Argentina’s war of independence from Spanish rule, marched into Chile and occupied Santiago. A curious trivia is that, Bernardo O’ Higgins, the illegitimate son of an Irishman who had served the Spaniards as the Viceroy of Peru, was appointed as the second-in-command of Jose de San Martin’s forces and it was O’Higgins who later became the supreme director of the new Republic of Chile. A declaration of independence was officially issued by Chile on February 12, 1818 and formally recognized by Spain in 1844. Under O’Higgins, Chile gradually began to achieve political and economic stability.

A major fillip to Chile’s fortunes came from the spoils of the War of the Pacific (1879-84) during which time the country annexed vast copper- and nitrate-rich areas from Peru and Bolivia. Soon after that war, a global nitrate boom brought prosperity to the country, and an efficient railroad system further fueled the economy. This victory is still celebrated with great fervor by Chileans. Even today, copper is the cornerstone of the Chilean economy.

O’Higgins dominated Chilean politics in the years after independence but the landowning elite who first supported him later objected to his rule due to higher taxes. He was replaced by a de facto dictator Diego Portales whose Constitution, which centralized power in Santiago and introduced indirect elections to the presidency, lasted until the early 20th Century.

In the early decades of the 20th century, Chile’s economy suffered a near-collapse as the demand for mineral nitrates fell. What’s more, a dictatorial general called Carlos Ibáñez del Campo held power for a few years, and during his rule, Chile’s economic woes increased. The Great Depression worsened the situation and the country plunged into a period of widespread opposition and riots until World War II came as a godsend. The war boosted the demand for Chilean copper and the country’s economy quickly recovered. In the subsequent years, Chilean politics grew increasingly polarized, complicated and confrontational.

In 1970, Chile saw one of its most fiercely fought elections, which resulted in socialist leader Salvador Allende becoming the world’s first democratically elected Marxist president. But the country was far from being peaceful. In 1972, what began as a truckers’ strike led to unimaginable consequences. Faced with the prospect of losing power, Allende invited the army commander, General Carlos Prats, to join the Cabinet. But the crisis ballooned into an unsuccessful military coup in 1973, ultimately leading to the resignation of General Prats and the appointment of Augusto Pinochet Ugarte, then an obscure General, as army commander.

Caravan of death

In September 1973, Pinochet unleashed a brutal coup d’état during which numerous Allende sympathizers were rumored to have been herded into the Santiago National Stadium to be beaten, tortured and executed. Hundreds went into exile. Pinochet appointed himself president in 1974, and thus began Chile’s darkest days of widespread repression, torture, and murder. He is believed to have organized a ‘caravan of death,’ a military group that travelled from town to town, city to city, ruthlessly hunting down political opponents, even those who had surrendered. Thousands ‘disappeared’ during this reign of terror. In 1980, Pinochet organized a controversial plebiscite, which approved a new constitution and proclaimed him president for an eight-year term.

Return of democracy

In the early 80s, cracks appeared in Pinochet’s dictatorship and murmurs about democracy began to get louder. Eventually, in 1988, a much-weakened Pinochet held a plebiscite seeking a second eight-year term as President. He lost. In December next year, democracy returned to the battered country when Patricio Aylwin, the coalition candidate of a group of opposition parties who called themselves the Concertación para la Democracia, defeated Pinochet’s protégé Hernán Büchi for the post of president.

Containers ready to be shipped at a Chilean port. Chile boasts of a free trade policy that gives its access to numerous markets across the globe.

Slowly, Aylwin consolidated the re-born democracy, although there was a constant struggle between the ruling government and the actual Constitution that still accorded the military considerable powers.

Over the next two decades, the center-left Concertación managed to win successive elections, holding power for four consecutive terms. Two important political events took place in these twenty years. In 2005, Chile carried out constitutional reforms on 58 grounds, with one of the key changes being the reduction of the presidential term from six years to four years. Secondly, in 2006, Socialist Party leader Michelle Bachelet, a Concertación nominee, won the presidential elections to become Chile’s first woman President. Bachelet governed until early 2010 when the center-right Coalition for Change’s Sebestian Pinera, a well-known businessman who owns a TV station, a football team and a 25 per cent stake in the Chilean national airlines LAN, was elected president.

One of the salutary effects of the Pinochet regime was its pro-market agenda. The dictator started reforming the economy and gradually pushed Chile toward a free market system. Fortunately, the four democratically elected presidents of the Concertación coalition who followed Pinochet did not completely abandon the dictator’s legacy. Just as the Pinochet regime had sold many state-owned firms, the subsequent democratic governments continued privatization, albeit at a slower pace. They also consistently retained some of the sound economic policies that were implemented in the 80s.

With newfound economic and political stability, the Chile of today is very different from what it was during Pinochet’s rule. The country is ranked among the forty most developed countries, its economy is robust, healthcare has improved, life expectancy is up and poverty has been halved. Socially as well, Chile is embracing modernity and casting off old biases. Despite its many achievements, though, the country has a long way to go in terms of reducing economic inequality and tackling tensions, which keep sparking between the State and the people of the indigenous Mapuche community.

Incidentally, whites or people of pure European descent and the Mestizos or people of partly white ancestry together make up 95% of Chile’s population of 17 million. The country’s indigenous inhabitants, of whom 80% are Mapuches, account for the remaining 5% of the population.

Culture

The joy of ‘18’

Having suffered and endured ruthless invaders and dictators throughout history, Chileans view themselves as a brave and resilient society. The biggest day of riotous celebration in the Chilean calendar is also linked with national identity. The ‘18’ as the Chileans call it, is celebrated on the Chilean National Day — September 18 — with great joy and fervor. It is the day Chileans go out on the street to make merry, sing and dance the Cueca, the national dance, and eat empanadas (meat pastries) by the dozen. And of course, gulp down bottles and bottles of Chilean red wine.

On the ‘18,’ many dress up as the typical Chilean cowboy Huaso, a symbolic figure who wears a wide flat-topped hat, multi-hued ponchos and shiny high-heeled boots with spurs. In fact, the festivities begin a week earlier, with many fiestas patrias (patriotic parties) held during the week. These celebrations include colorful cowboy parades, lots of folk music and dance, and not to forget, traditional Chilean delicacies. A major part of the celebration takes place in public gatherings in Ramadas, which are temporary shacks with roofs made from tree branches. These Ramadas usually have a dance floor, rhythmic music and tables to eat. Typical Chilean fare such as empanadas and anticuchos and drinks like chichas and piscos (fermented apple brew and grape brandy) are served in these shacks.

‘Once’ upon a time in the afternoon…

Young Chileans dancing the Cueca, their country’s national dance.

Like in most ancient cultures, food is accorded special respect in Chile. Chilean cuisine too is a mesh of its Indian and Spanish influences and speaks for the unique sense of cultural homogeneity that Chileans are justifiably proud of. The national dish Porotos Granados is a delicious mixture of locally produced corn, squash and beans with a dash of the Spanish in the sprinkling of onion and garlic. Another popular national delicacy is the caldillo de congrio, a soup made of conger eel, tomatoes, potatoes and a melody of herbs and spices.

Traditionally, Chileans eat four times a day, with a unique meal called “once” usually eaten between 4 p.m. and 7 p.m. Once is a light meal typically consisting of sandwiches with cheese and avocados accompanied by tea or coffee. A cheeky tale recounts that long ago, men wanted to drink their liquor during the day and once was created to give them the liberty to do so. According to Chilean lore, it is pointed out that the word liquor in Spanish is aguardiente and the number of letters in aguardiente is eleven, which translates to once in Spanish!

Interestingly, Chilean Spanish is slightly different from the Spanish spoken in other Latin American countries and has a distinct ‘melody’ to it. And that melody is representative of everything about Chile – a place where contrasting cultures, geography and peoples have all fused harmoniously to create a sense of magic.

Economy

Exemplary economy

Chile is a textbook example of how nations can adopt the right mix of policies to create an efficient economic structure. Thanks to its free-trade policy, the country is today one of the world’s most open economies, successive budget surpluses have reduced the national debt to zero, and fiscal responsibility is mandated by law. Further, the country boasts of a privatized pensions system, guaranteed minimum income for the elderly, an effective anti-poverty campaign, and a public health provision. Chile was also the first country in Latin America to privatize state enterprises, reduce tariffs, and allow foreign capital.

No wonder the world marvels at the extraordinary economic and social progress Chile has made over the past two decades. In 1990, about 40% of Chileans lived below the poverty line. Today, that number has shrunk to 12% or 13%. The number of young people going to universities has risen from 10% to 40% during these twenty years. When Pinochet’s dictatorship ended in 1989, two-fifths of Chile’s expenses were incurred to pay off debt. Now the country has no debt to service and social programs account for 70% of its expenses. It is for reasons such as these that Chile is now widely considered one of the world’s most stable emerging market economies.

Chile’s economy revolves around commerce and mineral resources, besides agriculture. About 15% of the country’s population is employed in the agricultural sector. The Vale of Chile, the heart of the country with the highest population density and the greatest agricultural and industrial output, is the nation’s agricultural hub. The area’s vineyards are the primary suppliers to Chile’s flourishing wine industry. Besides grapes, apples, pears, peaches, beans, onions, garlic, oats, wheat, corn, and asparagus are grown in the region. Some of the other important economic activities in Chile include fishing, lumbering, beef and poultry production, and sheep rearing.

Commerce the mainstay

One of the main pillars of Chile’s economy is its free trade policy. The country has free trade agreements with developed nations such as the U.S., Japan, Australia and Canada, as well as emerging powers like China, Mexico, and South Korea. Chile also has an economic association agreement with the European Union and other forms of trade associations with India, Cuba, and various South American countries.

Further, the country recently joined the Organization for Economic Co-operation and Development(OECD), the first South American country to do so. These networks provide Chile access to billions of consumers worldwide. Exports account for nearly 40% of Chile’s GDP and have been growing at the rate of 4% a year since 1999. Copper makes up 56% of Chile’s total exports, while industrial goods contribute 26%, fish and fish-meal comprise 9%, and agricultural products around 6%. Wine is another substantial export from the country.

A third of the world’s copper in its belly

Possessing approximately 34% of the world’s copper, Chile is not only the world’s largest producer of copper but also has the globe’s largest open-pit copper mine, Chuquicamata, Copper makes up 56% of Chile’s total exports.

Copper has been the main export of Chile for close to two centuries now. This is understandable, given the size of Chile’s copper reserves. The country possesses approximately 34% of the world’s copper. Consequently, Chile is not only the world’s largest producer of copper but also has the globe’s largest open-pit copper mine, Chuquicamata, and the largest copper mining company, Codelco.

With approximately 200 years of copper reserves, Codelco produces a fifth of the world’s copper ore every year. The state-owned company’s primary output is 99.99% pure copper cathodes. Codelco is also the world’s largest producer of rhenium and second-largest producer of molybdenum, both byproducts of copper mining.

A big fish in the fisheries industry

An extraordinary confluence of factors has gifted Chile a large and flourishing fisheries industry. Owing to its low temperatures and the Antarctic current to its south, Chile has the purest and most oxygenated marine waters in the world, an environment where 1,016 species of fish thrive, including the renowned Chilean Sea Bass. As well, over the past fifty years, the country’s fisheries exports have been growing largely due to the development of the fishmeal industry.

Frozen seafood products make up nearly 45% of Chile’s fisheries-related exports. The country is also a large exporter of fishmeal, fresh refrigerated products, fish oil, canned products, and dried algae. Chile sends its fish products to 93 countries, but only nine account for 81.8% of total fish exports. Among these nine countries, Japan, the United States, and China are some of the biggest importers. Chile accounts for around 4% of the world’s total exports of fish products.

Bottled history

Wine aficionados tend to think it is only in the past 20 years or so that Chile has been competing in the worldwide wine market but the truth is, the country has an astonishingly long and fascinating wine history. Chile has been producing wine since the mid 16th Century when the Spanish settlers first brought French vines with them. By a quirk of fate, Chilean wine makers of the 19th Century became highly prosperous, not because of the wine, but because of a small insect!

In the late 1800s, European vineyards were attacked by the aphid phylloxera, an insect which devastated large swathes of thriving grapes. Curiously, Chilean vines remained completely unaffected, possibly because of the country’s geographical isolation or because the settlers had brought in unaffected French vines. Chile’s soil and climate too may have helped. From then onwards, the Chilean wine industry continued to thrive until World War II put the cork on exports to Europe. The poor economy at home didn’t help matters and production stagnated.

Democracy came as a blessing to the vineyards in the 1990s and the global liquor market again raised a toast to Chilean wines. Today, Chile’s wine industry has clocked annual sales of about $1.3 billion and the country is the fourth leading exporter of wine to the U.S. after Italy, France, and Australia.

Energy-challenged

Chile has an acute energy shortage and, for decades now, one of its most crucial challenges has been to generate and procure adequate energy for its power-intensive mines, industries and households.

The country seemingly found the solution to its energy problem in 1995 when neighbor Argentina promised an assured supply of natural gas from its vast reserves. Chile promptly constructed gas pipelines and its firms invested in infrastructure to retool their production facilities to utilize natural gas. By 2003, more than half of the electric energy Chile consumed was generated by electrical power plants fed by natural gas from Argentina. Chile had come to depend heavily on its neighbor and this was asking for trouble.

In 2004, Argentina suddenly changed its energy policy, deciding to give priority to domestic consumers rather than exports. Since then, Argentina’s natural gas supply to Chile has shrunk drastically and Chile’s electrical power plants have been forced to rely on more expensive diesel.

Steamfields such as this one in northern Chile, have the potential to generate a total of 16,000 megawatts of power every year.

The setback, though, has had a bright side. Chile’s government has been desperately trying to find a more lasting solution to its energy woes. In order to diversify its energy sources, the government opened a $1 billion LNG re-gasification plant in 2009. More importantly, the country is finally making an effort to leverage its vast geothermal resources.

Geysers to power future growth

Chile has perhaps the world’s largest untapped geothermal energy potential thanks to its numerous geysers and steam fields in the north, close to the border with Bolivia and Argentina. Therefore, experts estimate that the country has the ability to generate as much as 16,000 megawatts of electricity using geothermal power.

Since Chile’s current power scarcity is about 7,000 megawatts, the geothermal capacity is sufficient to wipe out the shortage and leave some power for exports. And yet, Chile today produces less than 10 megawatts of energy from geothermal sources.

Fortunately, having learned a painful lesson for failing to harness its energy resources, the government is beginning to act. As a first step, the Chilean Ministry of Mines has been positioning the country as an attractive destination for international geothermal investment.

Thanks to these efforts, the government successfully completed the bidding process for geothermal exploration concessions in early 2010. It has allocated seventeen geothermal areas to nine companies, which are then expected to invest $106 million over the next two years. Seven of those companies are foreign-based.

Recession: A speed bump

Not surprisingly, the prospects of Chile’s economy have always been closely linked to the global demand for copper. For instance, in the period between 2003 and 2007, Chile recorded strong annual GDP growth on the back of high copper prices across the globe. In contrast, when copper prices halved at the peak of the global financial crisis in late 2008, Chile saw a dramatic fall in its exports.

As economic activity continued to weaken through the first half of 2009, Chile’s government responded quickly with a $4 billion stimulus program and monetary measures, which have since been applauded widely. While the central bank slashed interest rates by a total of nearly 8 percentage points, the government drew from the reserves set aside during the period of high metal prices and increased spending on public projects and infrastructure to keep domestic demand propped up. A considerable recovery in copper prices also helped, and Chile managed to limit the damage to a GDP contraction of 1.9% in 2009. However, Chilean exports declined 20% during 2009 compared to 2008, primarily due to the fall in the global demand for copper and other metals.

Nevertheless, in the beginning of 2010, the outlook for Chile’s economy improved substantially. On the back of aggressive inventory restocking by businesses around the world, the demand for copper and other metals had grown consistently throughout the second half of 2009 and a major part of the decline in copper prices had reversed. The world community saw Chile as one of those countries that had recovered strongly from the recession. Chile’s GDP growth was pegged at 4-5% for 2010. However, just as the Latin American powerhouse was bracing for a return to its pre-recession momentum, the ground slipped beneath its feet.

Located on the boundary of two converging tectonic plates, Chile is prone to frequent earthquakes. The 1960 earthquake near the Chilean city of Valdivia was the strongest ever measured anywhere in the world while the February 2010 disaster was one of the most powerful in a decade.

Shaken…

The 8.8-magnitude quake that struck Chile in late February 2010 not only affected one-eighth of Chile’s population but also dented the country’s fragile recovery. Chile lies in the ‘Pacific Ring of Fire,’ one of the world’s most seismically active zones, and has suffered several massive earthquakes in the past. But this was by far one of the worst — the last quake of similar force occurred in 1960. According to government estimates, the calamity destroyed property worth $30 billion, roughly a sixth of Chile’s GDP.

The new government has responded by announcing an $8.4 billion reconstruction plan. It intends to raise at least $3 billion by increasing taxes and the remaining $5.4 billion will be garnered from Chile’s $11 billion offshore sovereign fund — created from windfall copper revenues — bond issues, and public expenditure cuts. Around $8 billion of insurance payments from abroad will also help the rebuilding effort. Further, reconstruction activity is expected to create large-scale employment and aid GDP growth.

…but standing firm

Santiago, where the regional offices of several multinational corporations are located, is one of the leading financial centers of South America. A skyscraper under construction in the city’s financial district, when completed, will be tallest building on the continent.

Though the cost of reconstruction is massive and will hobble Chile’s growth for some time, Chileans can take heart from the fact that, for a variety of reasons, the quake has done much less damage than it had the potential to do. For instance, the earthquake that reduced Haiti to rubble in January 2010 was hundreds of times much less powerful than the Chilean quake. Yet an estimated 200,000 people perished in Haiti while Chile’s death toll was approximately 500. Further, much fewer people were rendered homeless in Chile than was initially thought because the country, being in a seismic zone, has strict building codes.

It was providence too that the epicenter of the quake lay to the south of densely populated Santiago and much deeper down in the earth than in Haiti. This ensured that human and property losses were much less severe. Moreover, Chile’s copper mines, which are located to the north of Santiago, were relatively unaffected, although the forestry and wine industries suffered some damage. In fact, Codelco was able to resume operations only two days after the quake.

The future is now

Clearly the quake has caused a few cracks in the brickwork of Chile’s economy, but strength remains in the foundation — the foundation the leaders and citizens of Chile have been building assiduously for a strong economic future. The recession notwithstanding, the world is in the middle of a commodity super cycle. Billions of people across the developing world are taking the leap from the poverty line to the middle class and from the middle class to the affluent class. That translates to better, bigger and more houses, as well as more automobiles, appliances, computers, lights, televisions, telephones and everything else that uses copper, a commodity Chile has plenty of.

Further, as its quick recovery from the recession and the earthquake’s devastation demonstrate, Chile has an economic structure resilient, potent and flexible enough to withstand adversity. In addition, the nation has a stable political system, fiscal strength, a qualified workforce, social safety nets to boost consumption, as well as globally competitive industries. The icing on cake is that the energy situation seems to be improving. Perhaps, the future Chile has been preparing for is beginning now.