MercoPress. South Atlantic News Agency

Piñera promises 7.2% of GDP for education trying to calm protesting students

The Chilean president reads the budget and appeals to students

The Chilean government proposed a 5% increase in public spending and a 7.2% 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 dollars next year, President Sebastian Piñera said in a televised address. Congress has until the end of November to approve the spending plans.

The budget, Piñera’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 dollars on education and create a 4 billion fund for scholarships, the biggest education outlay in Chile’s history, Piñera 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.

Protesters want more than the government has been offering and will continue demonstrating, student leader Camila Vallejo anticipated. The 4 billion dollars education fund would be spent over four to six years, Radio Cooperativa reported, citing Deputy Finance Minister Julio Dittborn.

Finance minister Felipe Larrain also anticipated that parallel to the budget Congress should debate tax review. “We need to discuss whether tax reform would be aimed at redistribution, investment promotion or expanding on ways to strengthen economic growth.”

The Piñera administration plans to post a fiscal surplus equivalent to 1.3% of GDP in 2011 and shrink the structural deficit from 3% in 2009 to 1% in 2014, Larrain said. The structural target takes cyclical swings in the economy 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.”

The central bank estimates the economy will grow 6.25% to 6.75% this year before slowing to 4.25% to 5.25% 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 dollars in sovereign funds, he said Sept. 22 in Washington.