MercoPress. South Atlantic News Agency

Record budget surplus in Chile this year: 7.6% of GDP

Chile estimates the budget surplus in 2006 will reach the equivalent of 7.6% of GDP, up from 5.3% originally announced at the beginning of the year. However economic growth will be in the range of 5%, below the original forecast of 5.3%.

The new estimates were announced this week by Finance Minister Andres Velasco before the Chilean Congress, which formally opened the discussions of the 2007 budget.

"Regarding fiscal policy, it is estimated that government expenditure this year will expand 6.2% which means the fiscal surplus should reach 7.6% of GDP", said Velasco.

Estimates for the new budget indicate 5% growth in 2006 and 5.7% next year. Chile's economy expanded 6.3% in 2005.

"During the current year the Chilean economy will experience an expansion slightly inferior to its potential and that registered in the two previous years", indicated Velasco who said this could be explained mainly because of the strong hike in energy costs and specific situations which had an impact on agriculture and mining, "however these factors are transitory, so their effects should be limited to the current year".

The 2007 budget estimates a public expenditure expansion of 8.9% in 2007 with a fiscal surplus of 4.4% of GDP. Copper prices in 2007 are estimated in the range of 2.05 US dollars the lb, which means a significant reduction from the current average of 3 US dollars the lb so far this year. Copper is Chile's main export commodity.

"Public expenditure growth next year is totally consistent with the maintenance of macroeconomic equilibriums", said Velasco who pointed out that Chile in the first half of this year accumulated a record fiscal surplus of 5.9 billion US dollars, equivalent to 4.2% of GDP.

Insisting with the benefits of next year's budget Mr. Velasco described it as "expansive and responsible" since it doubles social outlays in health and education, "tangible benefits for people's quality of life". As to the economy's growth, "it's healthy and sustainable" in spite of the fact that during 2006 Chile suffered special circumstances, "temporary", which had an influence on the economy's overall performance and dynamism.

Opposition Senator Evelyn Matthei said the budget seemed "reasonable", but cautioned that much would depend on how it is executed, "creating real jobs and improving the quality of education".

Contrary to Minister Velasco's optimism, Senator Matthei said that Chile has 600.000 unemployed and the budget only offers 130.000 "emergency jobs". "Emergency jobs are government hand outs and people want stable, real jobs", she underlined adding that the current administration has sufficient resources, and with international copper prices at their current level, "unemployment should be in the range of 6 to7% and not 8.5%". Senator Matthei said that expenditure in education in the last 16 years has trebled but the results "are getting worse and worse".