Codelco's phantom production inflates two years of accounts as Chile's fiscal credibility crumbles

The Codelco accounting scandal is deepening just as the Finance Ministry faces its toughest political test in years, creating a convergence of pressures on Chilean institutional credibility that no single data point can fully capture on its own.

The board of the state copper producer was informed on Tuesday of new inconsistencies in its 2024 and 2025 production figures, pointing to a possible "artificial increase" at the Ministro Hales and Salvador divisions. The irregularity, which already triggered a KPMG audit to review all production at those divisions, now expands with a separate mandate to EY to specifically investigate the duplications detected. The findings were handed over to the Public Prosecutor's Office, and Representative Jaime Mulet announced he will expand the criminal complaint already filed. The emerging hypothesis — that the same material was recorded as production by more than one division, systematically and possibly with the aim of artificially inflating targets — is serious for a company that has already accumulated years of operational deterioration and whose depressed production, according to Finance Minister Jorge Quiroz himself, will subtract at least one percentage point from 2026 GDP. CEO Jorge Gómez promised an "exhaustive" investigation and recovery of "any damage to assets," but the fact that the irregularity spans two full fiscal years amplifies the potential impact on the corporation's consolidated financial statements and on the tax revenues that depend on it.

It was precisely that context that framed the presentation of the State of Public Finances before the Joint Budget Committee, where Quiroz faced a tense debut. The minister confirmed a drastic downward revision in the 2026 GDP growth projection: from 2.1% at the start of the year, through 1.8% at midyear, down to a meager 0.7% today — the worst reading since 2003, by his own characterization. For 2027, by contrast, he projects a rebound to 3.3%, a figure analysts consider more plausible than this year's growth target, though the market maintains moderate skepticism. The downward revision was not well received in Congress: lawmakers from the ruling coalition's left wing requested postponing the corporate tax cut included in the mega-reform recently upheld by the Constitutional Court, while the opposition used the US$25 billion borrowing request included in the budget bill as a negotiating lever, demanding a qualified quorum for its approval.

The Treasury also simultaneously presented its quarterly Public Finance Report, which revealed the magnitude of the pending adjustment: between 2028 and 2030, the Finance Ministry will have to cut spending by US$12.895 billion to meet the structural deficit target of 1.5% of GDP by the end of the administration. The fact that in none of the model's three scenarios — base, optimistic, and pessimistic — is that gap closed without additional measures turns the government's "fiscal responsibility" signal into a promise still to be proven. The good news, the only concrete item of the day, is that the 2026 structural deficit will end around -2.3% of GDP, better than the -2.6% target, which will allow Quiroz to declare that the fiscal rule will be met for the first time in four years.

Within this budgetary adjustment framework, the Finance Ministry also disclosed a technical measure of significant scope: the 2027 Budget Bill raises the annual cap for FX hedging operations via forwards from US$4 billion to US$24 billion. The expansion sextuples the Treasury's capacity to sell dollars forward, a tool that gains relevance in a context where the Chilean peso remains fertile ground for carry trade. Marcelo Zúñiga, head of Trading at Global Capital Markets at Scotiabank Chile, warned that "Chile continues to be one of the preferred countries for foreign investors to buy dollars and fund carry trade positions in the region." The exchange rate closed above $970, reversing a morning drop once the initial effect of the Treasury's auction announcement wore off.

Equity markets, meanwhile, maintained the positive tone inherited from Monday, when the IPSA jumped on the spillover effect from the Brazilian market, where Flávio Bolsonaro's unexpected lead in the first round sent the Bovespa up 7.7% and the real up 4%. Chilean companies with exposure to Brazil — Latam, CMPC, Copec, Cencosud, Coca-Cola Andina, and Sonda — saw their combined market capitalization rise by approximately US$1.170 billion in a single session, with Latam accounting for US$874 million of that gain. Wall Street closed at a record today, contributing to global calm in the U.S. bond market.

In the mining sector, the unions at Minera Centinela — representing 708 workers — activated contingency plans after the failure of mediation with Antofagasta Minerals, with a strike that could materialize as early as this Wednesday. The company, whose holding trades on the London Stock Exchange as Antofagasta plc, thus faces additional labor pressure at a moment of fragility for domestic copper production. Meanwhile, U.S. Ambassador Brandon Judd revealed that the Development Finance Corporation is working on multibillion-dollar investments in Chile, with priority focus on copper refining, port infrastructure, and data centers — a sign of U.S. strategic interest that arrives in the context of the seminar organized by Sofofa to commemorate the 20th anniversary of the FTA with China, Chile's largest trading partner, with bilateral trade exceeding US$67 billion in 2025, and which raises the question of how Chile will navigate geoeconomic tensions between Washington and Beijing.

Next week will bring the first general vote on the Childcare bill in the Chamber's Labor Committee, scheduled for October 20, while the budget debate will continue with the most contentious ministerial allocations still to be discussed. The evolution of the Codelco investigations — with two audit firms now working in parallel and the Public Prosecutor's Office active — will be the most sensitive thermometer of the institutional health of the Chilean State in the coming weeks.