Good Economic News From Chile

Today's Santiago Times provided a sign of hope that the worldwide recession may finally be abating. An article entitled, CHILE ANNOUNCES 4.3 PERCENT BUDGET INCREASE FOR 2010, opens with, "While other nations are struggling to cut costs and sacrificing social programs to combat the worldwide economic crisis, Chile´s 2010 budget will grow by 4.3 percent next year and includes a 5.8 percent increase in social assistance programs, Finance Minister Andrés Velasco announced Wednesday."

The next sentence does give one pause: "The 2010 budget - proposed by Velasco this week - follows news that unemployment appears to have stabilized at 10.8 percent for the second consecutive month." Of course, the official U.S. unemployment statistic is now 9.8%, and I heard on CNN today that if you include those unemployed folks who have either exhausted their unemployment benefits, or who have taken part-time work in place of the full-time jobs they used to have, the figure rises to 17.2%.

But back to Chile. The remainder of the article is as follows:

"Velasco said Chile will meet budget its responsibilities and be one of the nations to most quickly recover from the world economic crisis because, “We were well prepared.”

Under Velasco´s guidance, President Michelle Bachelet’s government implemented a strict savings plan when the economy was soaring due to high copper prices a few years back. That decision was highly criticized by opposition parties at the time (and some within the governing Concertacion coalition), but proved to be a very wise decision. The surplus that accumulated allowed Chile to continue with social programs, increase stimulus spending and provide assistance to the most vulnerable through the tough 2009 fiscal year and on into 2010.

Velasco proposes a balanced budget for 2010 with a 4.3 percent spending increase compared to 2009. Spending focuses on education, social needs and increasing economic activity. The finance minister is projecting a 5 percent growth in GDP.

The budget allocates over US$7 billion to infrastructure spending to build sports and cultural facilities, roads and housing throughout the country. The Health Ministry alone will spend US$5.9 billion, an 8 percent increase over 2009, to build 31 new hospitals, among other projects. That will bring the number of hospitals built under Bachelet´s government to 90, a promise made during her campaign.

Education funding will increase for the third year in a row and represents the largest block of spending in the 2010 budget. The nearly US$8 billion will in part be used to double, from 30,000 to 60,000, the number of laptops awarded to the country’s best performing 7th graders. There are also increases in grants for students to study English, computer sciences or technical fields and those wanting to complete post graduate studies abroad. Velasco stressed that education spending is key to Chile’s future growth, stating, “A good education is a priority for today, not tomorrow.”


The key is Velasco's quote, “We were well prepared.”

A successful business plan should include a budget line item for Bad Debt. This covers customers to whom the business extended credit and who could not pay off their debt, accounts receivable that the company has to settle for less than 100% of the total due, et cetera. The Chilean government should be praised for its economic foresight. Citizens of Chile are now going to reap the rewards of this thinking.

Could the U.S. federal government do the same? The answer is not as simple as it seems. We have voluntarily taken upon our shoulders international responsibilities that a country such as Chile is neither equipped, nor inclined, to accept. Let's hope that the citizens of the U.S. will likewise reap the rewards of that thinking.