During the emerging economies' commodities boom a few years back, Chilean Finance Minister Andrés Velasco was a wet blanket at the fiesta. Chile, the world's largest copper producer, was reaping a bonanza from the quadrupling in the metal's price. Mr. Velasco insisted on squirreling away a large chunk in a rainy-day fund.
As the savings swelled above $20 billion -- more than 15% of Chile's economic output -- Mr. Velasco faced growing pressure to break open the piggy bank. In September, protesters barged into a presentation by Mr. Velasco, carrying an effigy of him and shouting, "The copper money is for the poor people."
The CIA World Factbook has the estimated US 2008 GDP as $14.29 trillion; 15% of that would be $2.143 trillion.
Wonder who led those protests?
The 48-year-old Mr. Velasco, wary that a flood of copper income could generate lending and consumption bubbles, stood his ground, even as the popularity of the center-left government withered. Latin American history, he cautioned, was full of "booms that had been mismanaged and ended badly."
Finance Minister Andrés Velasco built Chile's rainy-day fund.
Today Mr. Velasco looks like a prophet. Since the onset of the global economic crisis, copper prices have fallen by 50%, in line with the sharp decline in other commodities. Emerging economies that got too giddy in the good years are now coping with nasty hangovers. Soybean-dependent Argentina is facing a possible debt default while oil-rich Russia has been stuck bailing out banks and companies that got in over their heads in debt.
Thanks to Mr. Velasco's caution, Chile is now in a position to try to bootstrap its own recovery from the global recession. Mr. Velasco's preemptive moves have kept Chile's government from having to spend a single peso on bank bailouts. Having paid down foreign debt during the fat years, Chile is now a net creditor nation, with a debt rating that was upgraded by Moody's Investors Service in March.
And now Chile is pouring some of its copper savings into a massive stimulus plan, consisting of job-creating public-works projects, tax breaks for business, investments to keep mines operating and other goodies. Chile's plan is one of the largest stimulus packages in the world relative to the size of its economy. The Chilean program is the equivalent of 2.8% of gross domestic product, versus 2% in the U.S.
And it doesn't have to be borrowed.
Juan Carlos Huaiquimil, who sells soft drinks from a pushcart, is the head of one of 1.7 million Chilean families, the poorest 40% of the population, which received cash stipends from the government in March. He says the money, equivalent to $70, was a godsend, helping pay for school supplies and uniforms for his three children. Last week, Chile announced another stipend will be paid in August.
"How many countries are in a position to give away money today?" he asks.
The answer in emerging-market countries is not many.
Nor among the emerged, developed countries.
For Chile's governing Concertación coalition, prudence is providing a belated political boost. The government is more popular today during the global recession than it ever was during the copper boom years. President Michelle Bachelet has a 67% approval rating, up 25 points since last August. Mr. Velasco, whose job appeared in danger a year or two ago, is as popular as she is.
To avoid repeating history, Mr. Velasco in 2006 pushed through a law requiring the annual budget to be based on an independent committee's estimate of the average copper price over the next 10 years -- not on the current market price. Any copper income above the budgeted price goes into a savings fund maintained outside the country.
In mid-2006, tens of thousands of Chilean high-school students, seeking free school transportation and education reforms, launched disruptive demonstrations, known as the "March of the Penguins," because of the students' black-and-white uniforms. In August 2007, Chile's top union leader called a national strike, after accusing Mr. Velasco of "declaring war" on workers by resisting wage demands. Protests coinciding with the strike led to street fights with police and hundreds of arrests.
So much for foresight.