Bloomberg News

Chile to Raise School Spending 7.2% After Months of Protests

September 30, 2011

(Updates with comment from finance minister in last paragraph.)

Sept. 30 (Bloomberg) -- Chile’s government proposed a 5 percent increase in public spending and a 7.2 percent gain in education outlays next year as it tries to end four months of protests that have seen a quarter of a million students miss classes and weekly battles with the police.

Total fiscal spending will exceed $60 billion next year, President Sebastian Pinera, the billionaire investor-turned- politician, said yesterday in a televised address. Congress has until the end of November to approve the spending plans.

The budget, Pinera’s second as president, aims to help reduce the cost of education for families, alleviate poverty and fight crime, he said. Spending growth is in line with economic growth forecasts and won’t represent a threat to the fiscal austerity that has made Chile the only country in the Americas that is a net creditor.

“We all want to grow faster but to go far we have to grow on rock not sand,” he said. “The 2012 budget has been designed especially with the needs and aspirations of our middle class and most vulnerable sectors in mind.”

The government plans to spend $11.65 billion on education and create a $4 billion fund for scholarships, the biggest education outlay in Chile’s history, Pinera said.

That is unlikely to stop protests that saw thousands of students march in downtown Santiago yesterday. In what has become a weekly ritual, the march ended in running battles with the police, who doused the area in teargas.

‘Complex Meeting’

Pinera spoke minutes after student leaders and Education Minister Felipe Bulnes met to seek an agreement on changes to the education system.

“It was a complex meeting,” Bulnes said in comments transmitted on national television. “We offered them different alternatives and it wasn’t easy to agree on ways to structure future discussions.”

Protesters want more than the government has been offering and will continue demonstrating, student leader Camila Vallejo said in a Sept. 28 statement.

The $4 billion education fund would be spent over four to six years, Radio Cooperativa reported today, citing Deputy Finance Minister Julio Dittborn.

The government doesn’t need new or higher taxes to fund the increase in education spending, Finance Minister Felipe Larrain said Sept. 13 in a speech in Santiago. Pinera didn’t mention changes to the tax system yesterday.

Fiscal Surplus

Economy Minister Pablo Longueira said in an interview this week that authorities will analyze tax changes in budgets after 2012.

“This is something we have to discuss parallel to the budget,” he said on Sept. 27. “We need to discuss whether tax reform would be aimed at redistribution, investment promotion or expanding on ways to strengthen economic growth.”

The Pinera administration plans to post a fiscal surplus equivalent to 1.3 percent of gross domestic product in 2011 and shrink the structural deficit from 3 percent in 2009 to 1 percent in 2014, Larrain said. The structural target takes cyclical swings in the economy into account.

Public spending will climb 4.6 percent this year when taking inflation into account.

“Make no mistake: We will keep a firm handle on the economy,” said Larrain, who next week is scheduled to provide his GDP forecast for 2012 to Congress. “Fiscal discipline is non-negotiable.”

Growth Outlook

The central bank estimates the economy will grow 6.25 percent to 6.75 percent this year before slowing to 4.25 percent to 5.25 percent in 2012, according to its latest monetary policy report.

Larrain is developing a contingency plan in case the global economy deteriorates further that may include tapping Chile’s $18 billion in sovereign funds, he said Sept. 22 in Washington.

“We’d have to be really magic to grow at 6.5 percent where the whole world is decelerating at the rate we’re seeing,” he said in an interview on National Television last night. “There’s an old adage: you expect the best and prepare for the worst.”

--With assistance from Sebastian Boyd in Santiago. Editors: Philip Sanders, James Attwood

To contact the reporter on this story: Randy Woods in Santiago at rwoods13@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.


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