60 years and our country, despite being in an excellent position to address these shocks, has not been spared its consequences. but today, our fiscal policy has been able to make an important reactivation effort, thanks to the prudence with which the years of high copper prices were managed. the other critical elements in our macroeconomic policies that favor stabilization are monetary and foreign exchange policies. although they play a somewhat more subtle role than fiscal policy, they are no less important. in the first place, a credible inflation - targeting regime ensures the proper reaction of monetary policy to significant deviations of output from its full - employment level. in particular, negative demand shocks that may come from worsened external conditions should be accompanied by a reduction of the monetary policy rate to prevent a deanchoring of inflation expectations and allow the economy to stabilize without suffering unsustainable, and costly to revert, contractions. this is especially visible today that the central bank board has reduced the monetary policy rate by 775 basis points, placing it at its minimum level of 0. 5 %, and has complemented this reduction with additional measures to boost the monetary impulse. a second key element in this scheme is the floating exchange rate. this policy favors stability, allowing the real exchange rate to adjust to internal economic conditions and minimizing output adjustments. oftentimes, persistent attempts to prevent the exchange rate to adjust to market conditions may encourage excessive capital flows and abrupt foreign exchange adjustments that may complicate the conduct of monetary policy ( figure 9 ). thus, the flexible exchange rate we have in place facilitates the adjustment as long as it is combined with a consistent macroeconomic policy and a solid and resilient financial system, as we have in chile. if fiscal and monetary policy were inadequate, exchange rate fluctuations could occur that would exacerbate macroeconomic swings. in any case, our current foreign exchange scheme contemplates the possibility of intervening in the market under exceptional circumstances, which we have done in the past. in summary, the combination of a flexible exchange rate, a prudent fiscal policy, a solid financial system and a monetary policy based on inflation targeting, contribute to stabilize the economy, and particularly to reduce the impact of copper price fluctuations on domestic activity. the economic and social stabilization fund and the pension reserve fund. conclusions the effect on economic growth of natural resource abundance has been at the center of the world ’ s economic debate throughout the years. this issue is also greatly important for chile,

jose de gregorio : economic growth in chile and copper speech by mr jose de gregorio, governor of the central bank of chile, at the cesco conference “ 1984 - 2009, 25 anos de la industria del cobre y su impacto en chile ”, santiago, 1 september 2009. i thank mariana garcia for her valuable contribution in preparing this work. * * * i want to begin by thanking you for inviting me to this conference celebrating the copper and mining research center cesco ’ s twenty - fifth birthday. it is an honor to have the opportunity to speak about the impact of the mining industry, and of copper especially, on chile ’ s development, given its importance for the country and in which i have great professional interest. chile is abundant in natural resources. one of the most distinctive characteristics of our economy is its large mining sector, particularly of copper, which places it as the world ’ s main copper producer. as a country we were blessed by nature with this enormous treasure. but as with every benefit, there can be related costs and risks that must be assessed. for a long time, natural resources have been part of the discussion about economic development. many years ago, natural resources were thought to be destined to a path of permanent price decline, which served as an argument to push forced industrialization. such a vision proved to be based on wrong grounds. nonetheless, development - related problems within the context of natural resource abundance have made their way back to the academic discussion in recent years. there are those who claim that natural resources are bad for a country ’ s development. they find that the abundance of natural resources has been associated with a poor growth performance. this finding leads them to the conclusion – a wrong one in my view – that natural resources are hazardous to a country ’ s development. as i will be asserting over this presentation, natural resources are a blessing, but their abundance in a scenario of institutional and economic weakness may turn it into a curse. i will also comment that, in the case of chile, solid bases have been in place to take advantage of the copper industry, very different from what occurred with nitrate in the early twentieth century. i will begin with a review of the international evidence on the relationship between natural resources and growth, to then focus on chile ’ s specific case and the relationship between abundance in our mining resources and our development. then i will talk briefly about the current economic scenario and how copper price fluctuations are no longer a source of instability