NEW YORK -- Defying the morose mood that has overtaken emerging markets since the Sept. 11 terrorist attacks, the government of Chile yesterday sold $650 million in bonds to international investors.

Chile is attempting to differentiate itself from its ailing neighbor Argentina, whose struggle with a large public debt has soured the mood for other governments that want to borrow money abroad. Investors in wealthy nations have also been avoiding riskier countries overall, as they increasingly face economic slowdowns at home.

Chile's peso has dropped about 20% against the U.S. dollar this year, as investors took swipes at major South American currencies in light of Argentina's troubles and the growing concerns about Brazil's public finances.

Yesterday's sale, the first from a major emerging market since Sept. 11, offered signs that investors are still willing to consider countries on their own merits. The 10-year bonds were rated investment grade and were priced to yield 7.226%. Chile has little foreign debt and has close to a balanced budget.

"We wanted to boost business and consumer confidence, showing that in the very eye of the storm the markets were open to this," Chilean Finance Minister Nicolas Eyzaguirre said in an interview.

But the bond sale also underscores Chile's vulnerability to the slowdown in the global economy. One-third of the country's gross domestic product comes from exports, the highest share of any major Latin American country, leaving it highly sensitive to a drop in international demand. Earlier this week, Chile's central bank cut its 2002 economic growth forecast to 3%-4%, down from an earlier expectation of 5% growth.

After a period of slower growth over the past few years, stronger exports and low interest rates were beginning to boost the economy when the attacks occurred. "Things were beginning to turn around just when Sept. 11 hit," says Andres Velasco, an economist with LatinSource Chile in Santiago. "The timing could not be worse."

Chile is especially sensitive to the price of copper, its main export, which has fallen about 28% over the past year. The money raised from the bond sale is expected to be used to replenish a special government fund that is usually filled by copper revenue. "We cannot avoid some degree of vulnerability stemming from adverse external conditions," Mr. Eyzaguirre said.

Questions:

1. "Chile is attempting to differentiate itself from its ailing neighbor Argentina, whose struggle with a large public debt has soured the mood for other governments that want to borrow money abroad."  Explain the reason for such a contagion effect.
2. "Investors in wealthy nations have also been avoiding riskier countries overall, as they increasingly face economic slowdowns at home."  One would have thought that diversification would be even more important in bad times.  Is this not true?  Is the investor strategy described above rational?
3. What are the implications of Chile's bond sale for other Chile-based firms that want to raise money abroad?
4. "Chile is especially sensitive to the price of copper, its main export, which has fallen about 28% over the past year."  What are the different ways in which Chile can insulate itself against movements in the price of copper?  Would these strategies apply to corporations in similar conditions?