May 21, 2006

Bachelet pledges prudence with copper windfall

SANTIAGO, Chile (Reuters) - Chilean President Michelle
Bachelet pledged prudent use of the country's windfall profit
from high copper prices on Sunday in her first
state-of-the-union address, even as she promised ambitious
social programs.

Bachelet said the government will stick to its rule of
maintaining an average 1 percent budget surplus for every
five-year period and will save a good portion of the mining
profit for when copper prices are low again.

Sky-high prices for copper, which increased fivefold since
2003 before dropping last week, have handed Chile trade and
budget surpluses of billions of dollars this year.

"The situation makes for enthusiasm but we also need to be
prudent," Bachelet, who took office in March as Chile's first
woman president, told lawmakers in a televised speech that
lasted more than an hour. We've seen the copper price rise and
we also saw it fall 10 percent last week. Let's not fool
ourselves, these high prices are surely temporary."

Chile, one of Latin America's most stable and prosperous
countries, is known for its conservative fiscal policies and is
the biggest copper producer in the world. State-owned Codelco
is the globe's biggest copper miner.

Saving some of the foreign income in off-shore investments
also will keep the local peso currency from over-appreciating,
said Bachelet, whose center-left coalition has been in power
since 1990 and controls both houses of Congress.

Bachelet, speaking in Valparaiso where Congress is based,
said her zeal for saving will not keep her from an ambitious
social program, including subsidizing high energy prices for
the poor, better-equipped government clinics and housing loans.

She said during her four-year term her government will
create new environment and security ministries and focus on
four main areas of "transformation," including:

-- Reforming Chile's private pension system, which is
admired as a model abroad but is also considered expensive and
leaves many Chileans without coverage.

-- Making a wider network of free pre-schools so that
poorer children are not already behind when they start first
grade, and improved secondary education.

-- Increasing public spending on research and development
by 50 percent to stimulate innovation and development so that
Chile exports not only metals and salmon, but things such as
mining software and technologies for healthy fisheries.

-- Having friendly neighborhoods, promoting safety and
green areas as well as housing programs.

"If we continue to do things well we can soon reach income
levels of a developed country," she said.

Bachelet reminded listeners that half of her cabinet
ministers are women, saying "my government will support in a
more decisive way women's rights" by eliminating gender
discrimination in hiring and in pension plans, and fine-tuning
sexual harassment and spouse abuse laws.

"Thanks to the men who also applauded that," she joked.