China Growth Enmeshes South America in “Commodities Supplier” Trap

Last month, Chile marked the bicentennial of its independence with pride in how far it has come in 200 years, but with a shadow over the celebration.

Unforgotten were 33 miners who have been trapped a half-mile underground by a shaft collapse for almost two months.

Copper mining has always helped to define Chile, and the country has united in its determination to save these men.

Last month, Chile marked the bicentennial of its independence with pride in how far it has come in 200 years, but with a shadow over the celebration.

Unforgotten were 33 miners who have been trapped a half-mile underground by a shaft collapse for almost two months.

Copper mining has always helped to define Chile, and the country has united in its determination to save these men.

But they most likely will not see the light of day for several more months, until a rescue shaft can reach them,

and so they stand as a constant reminder, just off center stage,

of how dependent Chile remains on exports of natural resources as the principal engine of its economy.

This is a core problem, now and into the future, that Chile shares with its South American neighbors —

the inability to break free of the shackles of commodities exploitation,

which provides their livelihoods but leaves them perennially vulnerable to boom-and-bust cycles and wild currency fluctuations.

It also consumes capital that might be used to develop higher-revenue, and more stable sources of wealth, like manufacturing.

And in some ways, the recent breakout development of other lands, principally China, may only make the trap harder to escape.

As it rapidly industrializes and becomes a sophisticated exporter of manufactured goods,

China has developed a seemingly insatiable appetite for the kinds of raw goods that South America produces —

soybeans from Brazil and Argentina; iron ore from Brazil; copper from Chile; oil from Brazil, Venezuela and others.

Those purchases held the region’s economies in a tight grip as they swung widely in the past two years because of the global economic crisis.

Latin American exports to China fell in the first half of 2009, then shot up by 45 percent the first six months of this year,

according to the Economic Commission for Latin America and the Caribbean.

And, more ominously, meeting these demands is causing the region to retrench in its efforts to diversify.

In the 1980s, raw materials made up half the value of goods exported from Latin America and the Caribbean, before dipping to under 27 percent in 1999.

But that number has been climbing back up over the last decade, and last year reached nearly 39 percent, the economic commission said.

The exports that increased most were natural resources from South America,

and their production came at the expense of manufactured products and services with varying degrees of technology,

the commission found in a study released in September.

The report showed, in fact, that South America’s exports looked much like they had 20 years ago,

in their balance between raw materials and manufactured goods.

Alicia Bárcena, executive secretary of the regional economic commission, called the trend “a re-primarization of the economy,”

and the commission said it was especially strong in Chile, where export sales (much of them of copper) are expected to grow 33 percent this year.

Mining made up 57.8 percent of Chile’s total exports in 2009, up from 54.4 percent in 2005, government figures show.

And it made up 15.5 percent of Chile’s gross domestic product.

“Of course this is a concern,” Sebastián Piñera, Chile’s president, said in an interview in Santiago.

He noted that in the past two decades, Chile had made some progress in diversifying its economy

by building up wine, salmon and fruit industries geared for export.

But a recent tripling of the price of copper obscured that progress, and Mr. Piñera said Chile needed to do more.

“I want to lead a new chapter in the development of our exports,” he said,

vowing to push harder than ever to promote enterprises that would take products like copper

and turn them into value-added goods before exporting them.

Doing that, he said, will require a “great leap forward” in investment in science and technology.

He set a goal of doubling Chile’s public investment in the area from 0.5 percent of gross domestic product to 1 percent by 2014, when his four-year term is up.

More developed Western countries already spend 2.5 percent of their gross domestic product on science and technology,

and some Asian countries, including Japan and South Korea, spend more than 4 percent, Ms. Bárcena said.

But Latin America faces trade barriers for value-added products like ethanol and chocolate,

and the pull of the market for the raw materials from which they come — sugar and cacao — has been strong.

“As long as commodity prices remain reasonably high — and they should, unless there is a hard landing in Asia —

reliance on exports of primary goods appears to be the region’s future, for better or worse,”

said Riordan Roett, the head of the Latin American studies program at Johns Hopkins University.

The key for the region, Mr. Roett said, will be to “sock away” export earnings for a rainy day

and use a sizable part of the earnings to “move in the direction of a knowledge-based society.”

Ms. Bárcena agreed. “The lesson of the 1990s and 2000 decades is there has to be an active public policy,” she said.

“There has to be the role of the public sector to bring up the level of the people in the schools, to invest in education and science and technology.”

Chile, under previous governments, did save well.

Now it falls to Mr. Piñera, a former corporate strategist who became a billionaire by making shrewd investments in an airline and a credit card processing company,

to use some of those savings to further modernize the country.

Mr. Piñera has already demonstrated an ability to draw on his entrepreneurial spirit and globally oriented outlook in his handling of the trapped miners.

When the San José Mine caved in on Aug. 5, he quickly mobilized his government to search for the men.

“I had a very strong conviction, very deep inside of me, that they were alive,” he said, in this article from the New York Times.

and it was vindicated on Aug. 22 when a note came up, through a relief hole bored into the mine, that all 33 were alive and unharmed.

Since then Mr. Piñera has consulted experts from around the world on how best to build a rescue hole at an unprecedented depth of 700 meters — nearly half a mile.

And he has sought advice from NASA and others on how to keep the miners physically and mentally healthy in a windowless and confined space for so many weeks.

“Every night I thought, ‘What can we do beyond what has already been done?’ ” he said.

The question could also describe the economic challenges ahead in Chile’s next hundred years.