Mining reforms key to Chile’s future – by Stephanie Nolen (Globe and Mail – November 26, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

SANTIAGO DE CHILE — Chile took a decided tilt to the left in elections this month.

Socialist Party leader Michelle Bachelet won the first round of voting with nearly twice the votes of her right-wing rival, Evelyn Matthei, and looks certain to become president in the second round of voting Dec. 15. Ms. Bachelet’s New Majority coalition – including six Communist Party candidates – won a majority in Congress.

The central plank of Ms. Bachelet’s platform is a pledge to increase corporate taxes from 20 to 25 per cent over four years and use the proceeds to fund sweeping reform of education, health and pensions, bolstering the role of the state in every field. She also says she will make businesses pay tax on reinvested earnings.

But none of that should alarm foreign investors, says Karin Poniachik, the former head of the country’s foreign investment council, who served as minister of mining during Ms. Bachelet’s first term as president four years ago.

“Oh, hide the babies, the Communists are going to eat them,” she joked, but then went on to say the first Bachelet government was as friendly to business and particularly foreign investors as the right-wing government that succeeded it.

Yet in an interview the day after the election, Ms. Poniachik said that there are key issues that a foreign investor eyeing Chile ought to be concerned about. And it’s an open question whether Ms. Bachelet will have the political agenda to take them on, given the scope of her social agenda.

“We’ve been extremely successful attracting foreign investment historically … but we’re competing with other countries that are increasingly attractive, especially in mining – countries that have higher ore rates and cheaper energy.”

Ms. Bachelet has said that as president she will revisit the law that shields foreign investors from the impact of tax reforms – a law on the books since 1974.

“People I’ve been debating say, ‘Foreign investment is not going to come into this country’,” Ms. Poniachik said. “No. Foreign investment is going to continue coming because Chile is super-attractive for mining. But we’re getting less competitive. Not because of royalties – it’s prices, the cost of energy, it’s the uncertainty around … the courts being more involved than regular institutions in environmental and other approvals.”

Ms. Poniachik cited three areas of concern.

Most important, she said, is energy – prices are high here and likely to keep climbing, because Chile is so dependent on imports, and because no political leader has been willing to take on popular opposition to new energy developments.

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