Monday, October 13, 2008

The peso did what?!

My new navy blue baseball cap dropped in price by two dollars and fifty cents in the past fortnight. Good news for me, bad news for Chile.

The global economy wobble, like a giant screwup where somebody drew what was supposed to be an elliptical orbit but had a giant hiccup, is affecting the price of the dollar here. A very simplified look at the Chilean economy demonstrates that it is nearly all based on copper.

Which would explain why when you fly over the north of the country, you are treated to sights such as this, below:




Also, if you talk to anyone with more than about a fifth-grade education, they will tell you that the problem with the Chilean economy (aside from the fact that it’s very linked to copper, the price of which fluctuates, leaving Chile at the mercy of world markets and world copper prices, and which we will eventually run out of, or the demand for which could drop) is the fact that we export materia prima (raw materials) and import manufactured goods. I don’t know enough about economics to give you a rule a law or an inverse proportion to explain exactly what the problem is here, but think about it this way: You have an apple orchard, and sell apples to your neighbor for a low price. She makes a delectable apple pie, which you just can’t live without. And so you buy back from her a slightly value-added product, which are essentially your apples with flour, shortening and with luck a little cinnamon thrown in, at a greatly inflated price. You are an idiot. You should learn to make your own pie, and go into the pie-selling business. You’re giving away your apples at firesale prices. Don’t do that!

So this is the problem with the Chilean economy. Too many apples, not enough pie. Or too much copper, not enough placas madres (motherboards) or whatever they make copper into. We also export cellulosa (paper pulp) and then import paper by the truckload. Wine and agricultural products, including farmed salmon and newly, abalone “round out” the economy, but these prices are set at the beginning of the season in dollars, and if the dollar gets stronger against the peso, producers receive dollars, which are worth fewer pesos. So a $10 bottle of wine, the price of which was calculated on the cost of labor and other details is worth somewhere between $4500 and $6380 pesos to the Chilean producer. (Using the peso/dollar values we have seen in the last year as parameters).

When the peso buys more dollars, the rich buy technology, and other imported goodies, and travel both inside and outside the country more. I myself bought a pair of biking shoes and clipless pedals for a bit under 80% of the price I would have paid in the United States, when the peso was low, at about 450 to the dollar.

But getting back to the wobble. Something about the dropping value of the dollar in the world market has driven the peso to the highest rate we’ve seen in four years. Which means that my new baseball cap, dropped in price by more than two dollars in the last two weeks. If only the sunscreen would do the same, I’d really be ready for spring.

There will probably be some emergency legislation to stabilize the economy, driving the peso back down to about 550. But in the meantime, it just makes me want to take money out of my US account (held in dollars) rather than my Chilean one (held in pesos). Except that now that I’ve bought my spiffy new hat, I don’t really need anything. Where’s Bush when you need him, telling people to go out and spend, spend, spend? And then politics got in the way and she had to go.

1 comment:

Manzanilloblogger said...

Copper is extremely valuable right now. I had no idea Chile exported so much of it. When I worked in NYC with a contractor, we'd scrounge every bit of scrap we could off the construction sites to sell.

In Mexico, people actually dig trenches to rip up the copper water pipes, they steal the copper off sprinkler heads, and out of street lights. (how did they know there was copper in street lights?)

Everybody is hurting in this world wide recession, but if Chile could process their copper and manufacture the copper piping and electrical wiring they would be sitting on a gold mine erm... copper mine...