Exchange rate structural fiscal balance and copper price: a puzzle
Chile’s exchange rate shows a strong volatility to copper price fluctuations. This correlation is essentially because copper is our main export product therefore increases in the price of copper imply higher returns from copper export volumes both for private and the stateowned mining company Codelco. However from the early 2000s the Chilean state has used a concept of structural balance for its public accounts defining ex ante a copper price in order to formulate its budget spending. Thus increases above this price should not have a significant impact on the peso-U.S. dollar parity since most of the surplus revenue from higher copper prices would be saved overseas. Furthermore in general private mining companies do not bring into the country additional surplus revenues obtained from copper prices higher than what had been in their budget forecasting.