OPINION — South American mood bullish

The mood is bullish in the South American mining industry in spite of sagging world mine development and a bleak price outlook, which will continue rampant during 1994 as a result of global economic troubles.

There is a good reason for this optimism. Sparked by creative reforms that revolutionized the nature of the South American mining industry from Colombia to Chile during the past decade, the Latinos have high hopes which go beyond short-term success.

Those who share understanding for the region happily agree that the place is no longer what it used to be. Things have improved to the point that nobody, not even the communists, dare propose a solution to underdevelopment without taking the market into consideration.

By 1990, most countries had established democratic regimes and open-order development strategies. The implementation of tight macroeconomic policies complemented the transition to a more modern economy in search of efficiency and competitiveness.

The gradual end of adjustment policies calmed social unrest and reduced investment risk in various countries. As advocated by Hernando de Soto, a published economist in Peru, property rights, and a market to trade them, became the central issue to decision-makers in the region.

In addition, important reforms to capital and profit repatriation procedures, plus the privatization of mining concerns and new mining legislation, acted as a magnet for investors who came pouring into the region.

Today, the United Nation’s Economic Commission for Latin America is projecting investments totaling US$12.5 billion in three South American countries during the next five years. The leader will be Chile with US$5 billion, followed by Brazil with US$4 billion and Peru with US$3.5 billion. Which is not to say that countries such as Bolivia or Argentina are to be looked down upon. Both nations have a high mining potential. Argentina, a newcomer to the mining world with US$1.5 billion already on the drawing board, is a completely undeveloped treasure box with many surprises awaiting the daring. Bolivia is a country with a long mining tradition which only needs creative minds to reap its fruits, with expected 5-year investments of US$600,000 million.

Most South American countries view their mining and business reforms as a sort of preparation for a long-awaited economic takeoff. Nobody is thinking of limiting the scope of reforms to a period of short-fused bonanza. Now we are talking about the future.

As a report of world metals statistics show, the region produces 36% of the world’s silver, 29% of its tin, 27% of its copper, 26% of its bauxite, 20% of its molybdenum, 20% of its iron ore, 17% of its zinc, 11% of its manganese, 11% of its aluminum and 9% of its gold. These quantities are impressive, but not sufficient.

There is growing awareness in South America today that reserves alone cannot secure sustainable growth. Policymakers such as Chilean Undersecretary of Mines Ivan Valenzuela hold that the distribution of ore deposits throughout the world is more extensive than was originally believed, and that the aptitude for mining in different continents is relatively homogeneous. From this perspective, argues Valenzuela, the comparative advantages based on the geological wealth of South America should be discarded in favor of a more holistic approach. Aside from a geological aptitude, a country also should at least have political stability and sound investment policies to attract the attention of investors.

Expectations are great because coherence binds what is said with what is done. South American countries are ready for a new start, with mining acting as the stepping stone for development and foreign capital as its most active principle.

However, First World countries should understand that South America can accomplish little if the trend towards protectionism succeeds in creating barriers to the ambient free trade that is needed for economic takeoff. — This article, written by Juan O’Brien of Santiago, Chile, appeared in a recent issue of the Knight-Ridder Financial’s “The Metal Review.”