Chile’s huge budget surplus causes tension
By Eduardo Gallardo
Associated Press
Michelle Bachelet has a problem other presidents would love: What to do with billions of dollars overflowing the government’s coffers.
As the world’s biggest copper supplier, Chile is flush with cash from a spike in commodity prices. But plans by Bachelet’s fiscally conservative government to keep socking away money and shoring up pension funds are stoking civil unrest and testing the mettle of Chileans and their politicians.
”If you receive some extra money, such as a Christmas bonus, you don’t keep it if you have needs,” said Jorge Luis Aedo, an accountant who lives in the port city of Valparaiso. “You spend that money for the benefit of your family. And we Chileans are the government’s family.”
But Bachelet says Chile’s future depends on how the surplus cash — which could reach $20 billion by year’s end — is handled.
”Nothing would be easier than taking populist decisions and spending all that money. We have to build now, but also in the future,” Bachelet told foreign correspondents earlier this month.
Her position stands in marked contrast to Venezuela’s bonanza of oil-fueled government spending, and Bolivia’s aggressive push to tap natural resource wealth to ease social ills in South America’s poorest country.
A booming world economy and rapid development in China swelled copper prices 440 percent between May 2003 and May 2005, when they reached a record $4.16 a pound.
Prices now hover around $3.70 a pound, 380 percent above May 2003, data from Chile’s Copper Commission show.
Copper alone brought in $33.3 billion in government revenue last year from both state and private mines and accounted for 40 percent of Chile’s exports.
The windfall profits have only increased the political demands for more social spending — even from Bachelet’s allies.
STREET PROTESTS
Months of street protests, fueled by anger over deteriorating schools and a botched subway project in the capital of Santiago, have driven the popularity of Chile’s first female president down from 65 percent to 40 percent and have shaken the center-left coalition that has ruled since the end of Gen. Augusto Pinochet’s dictatorship in 1990.
The anger even extends beyond the poor, into Chile’s relatively large middle class.
”A sensation exists that there is lots of money, and people feel that money is not reaching them,” said Bachelet, acknowledging the pressure.
Chile’s gap between rich and poor remains wide, and only one-third of Chileans polled in July by the respected Latinobarometro think tank shared the government’s tight-fisted stance on savings.
”People are protesting in the streets because they know there is a big cake and they want their slice of that cake,” said sociologist Marta Lagos, who runs Latinobarometro.
SOCIALIST TENDENCY
Bachelet, a socialist, has responded to calls for loosening up government purse strings with a 2008 budget plan that hikes social spending by 11.4 percent, including increases for education, health, housing and transportation.
While negotiations continue over how just how the transportation money will be spent, Congress is expected to approve Bachelet’s budget by Nov. 30.
For now, the public anger has trumped warnings by Chilean economists, who credit the surplus cash for buffering Chile from international financial turmoil stemming from the U.S. mortgage morass and other global troubles.
They also note that money will be needed over the long term to fund Bachelet’s plans for social security reform, including weekly pensions of about $130 to nearly 500,000 Chileans who now lack retirement income.
And since Chile’s economy and government revenues are more dependent on commodity income than ever, the savings will be needed when commodity prices falter.
”It’s the right thing to do, to accumulate resources now for future obligations,” said University of Santiago economist Guillermo Patillo. “Economies work in cycles and at some point income will drop, but obligations will not.”
