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Cablegate: New Goc Budget Oriented Towards Social Sector

VZCZCXYZ0000
PP RUEHWEB

DE RUEHSG #2063 2752142
ZNR UUUUU ZZH
P 022142Z OCT 06
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC PRIORITY 0085
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 1543
RUEHBR/AMEMBASSY BRASILIA PRIORITY 3316
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 3220
RUEHCV/AMEMBASSY CARACAS PRIORITY 1103
RUEHLP/AMEMBASSY LA PAZ OCT 4810

UNCLAS SANTIAGO 002063

SIPDIS

UNCLASSIFIED

SIPDIS
SIPDIS

E.O. 12958: N/A
TAGS: ECON PREL ELAB CI
SUBJECT: NEW GOC BUDGET ORIENTED TOWARDS SOCIAL SECTOR


l. (U) Summary. The GOC budget, the first of President Bachelet's
government, will be officially released October 3. The GOC Budget
Bill shows an 8.9 percent increase in public spending, the largest
increase in 10 years. Almost 70 percent of the 2007 budget proposal
goes to social spending. Labor, education, health and housing are
the priority sectors for Bachelet's administration, and they will
receive more than half of the resources assigned for public
spending. End Summary.

2. (U) Minister of Finance Andres Velasco sent the 2007 Budget Bill
to Congress for its discussion and approval on September 30. MOF
Velasco will formally present the bill to the Finance Committee of
the Chamber of Deputies on October 3. Official announcement is
expected to immediately follow his presentation. Meanwhile, Deputy
Lorenzini, Chairman of the Finance Committee, announced to the local
press the main aspects of the 2007 Budget Bill.

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SIGNIFICANT BUDGET INCREASE
---------------------------

3. (U) The political sector, including ruling coalition Concertacion
members, and even some members of the opposition, had been pushing
for a 10 percent increase in public spending because of the income
generated by high copper prices. While the 8.9 percent increase
reflected in the 2007 budget is shy of that goal, it is the highest
increase since 1996 when public spending grew 12.8 percent. Public
spending in the 2007 Budget Bill totals USD 34.9 billion. Per
capita spending for 2007 increased to a historical record totaling
CH$783,882, about USD 1,500, a 3.67 percent increased over the
previous budget.

BENEFITS THE SOCIAL SECTOR
--------------------------

4. (U) Headlines in Chile's three main papers observed that the new
budget presented to Congress is dominated by social spending.
Almost 68 percent of the 2007 budget goes to social public spending.
Labor, education, health and housing are the priority sectors for
Bachelet's administration and they are receiving more than half of
the resources assigned for public spending.

5. (U) Labor, Education and Health are the leading sectors in the
funding plans of the GOC's 2007 budget. The funds assigned to these
sectors focus on financing pension reform, improvement of the
education system, and the 16 new medical pathologies to be included
within the coverage offered by the public health care program
(AUGE). Labor represents 20 percent of the proposed 2007 budget,
totaling USD 6.9 billions, an increased of 3.2 percent over the
previous budget. The education budget increased by 10.6 percent
and, at USD 5.2 billion, constitutes 15 percent of public spending
for 2007. Total spending on health, about 6 percent of the budget,
would increase 12.4 percent to $2.1 billion.

OTHER SECTORS
-------------

6. (U) Public spending in defense for 2007 will total USD 1.9
billion of the GOC budget, but this sector also receives an
additional USD 833 million in funds from the Copper Reserved Law,
which assigns 3 percent of copper profits to the armed forces. The
Ministry of Public Works will get a 17.1 percent funding increase,
bringing its total to USD 1.7 billion, or 5 percent of public
spending. The Ministry of Housing and Urban Development increased
its resources by 12.4 percent though its USD 1.1 billion budget only
represents 3 percent of total appropriations. About USD 139 million
will be devoted to the construction of 135 new subsidized houses, an
18.2 percent increase compared to 2006.

7. (U) The 2007 Budget Bill is predicated on a 2007 GDP growth of
5.7 percent, an international price of copper at USD 1.21 per pound
(far below today's price of USD 3.44) and a fiscal surplus of 4.4
percent of GDP.

COMMENT
-------

8. (U) The increase in public spending remains lower than what was
expected by most actors in the political sector. Expectations
notwithstanding, President Bachelet's 2007 Budget is the most
expansive put together by any of the four Concertacion governments
since 1990. President Bachelet's budget for 2007 focuses on the
four main pillars of her administration as stated during her
campaign and her May 21 State of Union Speech: social protection,
education, better housing programs, and innovation and
competitiveness (through labor and public works).
KELLY

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