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A Conversation with Sebastián Piñera

Speaker: Sebastian Piñera, President, Chile
Presider: J. Tomilson Hill, Vice Chairman, The Blackstone Group; President and Chief Executive Officer, Blackstone Alternative Asset Management Hedge Fund Solutions
September 22, 2011, New York
Council on Foreign Relations

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TOMILSON HILL:  Good afternoon. We're truly fortunate to have President Sebastian Pinera of the Republic of Chile here with us today.

Some housekeeping details first.  Please turn off your cellphones, your BlackBerries, all wireless devices that might have interference with our sound system.  I want to remind you, today's discussion is on the record.  I want to welcome not just members around the nation but around the world who have participated today via the password-protected teleconference and then those members in Washington who are on the video conference list today.

In the current environment, the intersection of politics and economics has never been more critical.  Just witness what is going on in the markets today.

How many politicians do you know who are accomplished academics, with a Ph.D. in economics from Harvard, successful businessmen and recognized philanthropist with your wife?  While an academic, President Pinera was involved in actually implementing policy.  He was a consultant to the Inter-American Development Bank and the World Bank.

As a businessman -- and we just learned his relationship with Jobs at Apple permitted him to be the representative in Latin America for Apple at a very good time.  But he was an original entrepreneur and investor in any number of companies, in publishing, in construction, in real estate and in retail banking.  And in addition, he was one of the largest shareholders in LAN Chile, which now, with the Brazilian operation and the merger -- the largest airline in the world.

We all know that Chile represents the economic model for what every country ought to be doing, whether it's balance of payments, whether it's foreign direct investment.  And we are fortunate today to have an individual who can perhaps give the rest of the world a little bit of education about how to do it right.

So Mr. President, I welcome you.  (Applause.)

So I think -- if you'd like to make a few remarks -- or we can just start with the conversation.  Perfect.

PRESIDENT SEBASTIAN PINERA:  Conversation.

HILL:  Go ahead.  (Laughter.)

PINERA:  The mic is open?

HILL:  Yes, the mic is open.

PINERA:  So we are on the record?

HILL:  On the record.  Well, let's start with --

PINERA:  My minister of foreign affairs is very nervous.  (Laughter.)

HILL:  Well, he shouldn't -- he shouldn't be.

PINERA:  Because we're now on the record.

HILL:  Well, he shouldn't be because I'm --

PINERA:  Don't worry.

HILL:  I'm told you're very good at -- let's start with economic policy.  If you look at how you have done it right -- you know, you've got effectively a sovereign wealth fund that is designed -- it's now, I guess, 33 billion (dollars) -- which is designed to produce countercyclicality.  So when you have an experience of 2008, 2009, you have the ability to use your sovereign wealth fund to actually stimulate demand and to get the economy going.  You're growing right now at over 6 percent a year.  You've got significant foreign direct investment, 15 billion (dollars) shaping up this year.  As you think back on how you put in place all the building blocks, maybe you could start with how it all started.

Thank you.

PINERA:  Thank you, Tom.

Thank you, Bridget (sp).

Well, Chile was the poorest Spanish colony in Latin America and separated from the world by the driest deserts, the highest mountain, the biggest ocean.  But now it has become the country with the highest per capita income in Latin America.

How it's been done?

I would say that from a long period of time it was hard, that the old pillars of development were enough, basically to have a stable democracy with rule of law and a country which is extremely respectful of international treaty and international law.  On top of that, we had to have a free open-market economy integrated to the world.  Chile has free trade agreements with 56 countries in the world, which represent more than 80 percent of population and 80 percent of GNP.  I think that only Israel and maybe Mexico can say something similar.  And on top of that, we were able to construct an agreement in order to have a real consensus on how to approach the democratic challenge and how to approach the development challenge.

But we fast realized that that's not enough.  We are halfway on our way to development.  And you -- everybody who has climbed a mountain knows that the second part, the second half is the most beautiful one but also the most difficult one.  And we are in that stage.  With $15,000 per capita, if we want to become a developed country, we need to keep growing at 6 or more percent for many, many years.  If you take into account what has happened (to Chile ?) from 1987 until 2008, we went through 12 years of fat cows.  The average growth rate was more than 7 percent.  We were creating jobs, increasing investment, expanding our international relationships.  And during that period of time we recover in a very wise way our democracy, which is the natural way of life of the Chilean people.

Unfortunately, something changed in 2008 -- in 1998.  And since then, we went through 12 years of what we could call lean cows, because the growth rate went down by half; the same thing happened with our job-creation capacity.  Investment went down; productivity went down.  So when we -- when we came into power, our main goals was to recover and to revitalize what was once called the Chilean miracle.

And on top of those three old pillars, we are building the new pillars of development, which are basically to invest -- to triple our investment in science and technology; to promote innovation, entrepreneurship; to improve the income distribution of the country and to fight poverty with a new attitude and a new conviction; and to improve substantially the quality of education.

I would say that those are the new four pillars that will allow us to undertake the second part of this adventure.  And as a government, we have set a goal to become before the end of this decade probably the first one -- hopefully, not the only one -- Latin American country that has been able, or will be able, to defeat poverty and overcome underdevelopment.

And that's something that is not easy.  You know, most countries in the world have not reached that goal.  There is something which is called the middle-income trap.  If you take into account there's only a few countries in the last 50 years that have been able to go from poor countries to developed countries; you can count them with the fingers of one hand -- Korea, Japan, Singapore, Hong Kong -- and maybe I'm missing one.  And therefore, we know that it's a very difficult task, because most countries have been trapped in this middle-income trap, which is basically that you get there, and you cannot get out of there.  Some of them come back to their original situation.  But only a few have been able to cross that desert and become a fully and real developed country.  And we are in -- facing that challenge right now.

So I would say that not only your pillars -- stable democracy, open economy, competitive economy and state -- really plays its role, but we have to build these new pillars, which are the four ones that I mentioned before.  And we are working very hard on that.  And we are going -- and we are going the right direction and the right path.

First, in terms of growth, during the first semester of this year, the rate of growth in Chile was 8.4 percent.  Last year, it was 5.5 percent -- but we had to face the fifth-worst and most devastating earthquake in the history of mankind, which destroyed almost 20 percent of our wealth -- one out of three schools, one out of three hospitals, airports, ports.  And we had to face simultaneously the challenge of reconstructing the country and, at the same time, pushing our country towards a developed -- a development state.  And therefore, we are halfway.  And we are fully conscious of that.

So one of the things that really worries me -- are two things.  First of all, what is happening with the international economy -- and you are fully informed and aware on that.  And the second thing is that many countries, when they get to the level of $15,000 in terms of per-capita income, they think that they have -- (inaudible) -- and they are already there, and they want to spend as if they were already rich and developed countries.  So those mermaid songs have to be resisted.  And that's what we're doing, by keeping a very strong hold of sound economic policies; structural, fiscal equilibrium; openness of the economy.

And if we can grow at 6 percent per year on average, before the end of this decade our per-capita income might be higher than those of many European countries which belong today to the OECD.

HILL:  Now, can we drill down a little bit on trade?  There's a free trade agreement between Chile and the United States.  At last count, you had something like 57 different agreements on trade.  And as you think about your approach to open markets and a market economy, how have you constructed such openness?

PINERA:  Actually, we have 58.

HILL:  I beg your pardon.

PINERA:  Because we've signed -- no, no, you are very updated.

HILL:  (Laughs.)

PINERA:  But we signed a few weeks ago the 58th agreement, with Malaysia.  And we are keeping -- and we are working on that, because we are still working on more agreements.

How was that done?  Basically, it was an agreement, because normally, center-left governments don't believe in free trade.  And that's the history of Latin America.

They started all these integration efforts, which, at the end of the day, they failed, because they were not real, free, open trade approaches.  But it was rather that five or six countries would put themselves together in order to build huge protections against the rest of the world and try to (restore ?) the different industry within themselves, not according to market conditions but according bureaucrats' decisions.  And that doesn't work.

So in Chile we reached an agreement, which basically was to undertake these efforts as a -- as a national goal.  And therefore we were able to start signing all these agreements with the U.S., with Mexico, with Canada, with Europe, with China, with Japan, with India, with Malaysia, with many other countries.  And we're still working on that.  For instance, we're now working on this Trans-Pacific Partnership, where the U.S. will be part of it, but it could become the largest free trade agreement in the world, with countries at both sides of the Pacific Ocean.

We are working also with Mexico, Colombia, Peru and (Chile too ?) in what we call the Pacific Alliance, to really have a third-generation integration effort, not only goods and services but investment, people, physical integration and many things like that, because, at the end of the day, for a small country like Chile, openness and have a real open approach to the world is the only way to become developed country, but not only for small countries.  I'm absolutely convinced that free trade is good for all the countries.

I am fully aware that it's not good for everybody within each country, but it's good for the whole country.  And therefore we have to be very conscious that we cannot allow that special interest group -- stop the process of opening the economy.

Remember that, for instance, in the U.S., if you don't have a free trade agreement with Chile, somebody else will trade with us.  So some other country will take part of our markets which should be with the U.S.  That's why I think the free trade agreement that we signed with U.S. -- Peru has also signed a free trade agreement with the U.S.  Colombia is struggling to sign a free trade agreement with the U.S.  I think it's good for Chile.  It's good for U.S.  It is good for the whole world.

HILL:  Let's transition to the banking system.  Everywhere you look in the world, with the exception of Chile, there are stress tests to make sure that banks have actually done what they're supposed to have done, which is write down assets that deserve to be written down, have enough capital.  And I'm curious as to what was the framework that permitted you over a 20-year period to actually have a banking system where nobody's worried about the Chilean banks.

PINERA:  Actually, it was a 30-year period, because in 1981, we had to face a huge banking crisis in Chile.  And we learned a lesson.  And from then, we started first of all having a much better control over the solvency and liquidity, and to understand what they were doing, because part of the problem with the -- with the U.S. financial sector is that nobody knew exactly what was going on there.  It was a big failure of credit rating companies; the same thing with the Security Exchange Commission (sic).  And nobody realized that (banks ?) were really out of control.

So in our case, we learned the lesson with (that ?) in 1981, and since then we have forced banks to have the sufficient capital base.  And we have created a kind of security exchange commission, very professional, very modern, with a very tight control over the solvency and liquidity of banks, because when you get a crisis on your financial bank, the problem is not only of the banking sector.  The problem's really spread all over the economy.  And right now it's true.  Our banking sector is very sound, all of them, and therefore they are able to keep providing the financial services that you need especially when you're in a crisis period, like we are today.

HILL:  Last question.  On economic policy, copper is very important in terms of the economy, and as you think about your dependence on the rest of the world and growth in the rest of the world, how do you think about managing the risk to the economy of copper prices?

PINERA:  Copper is very important.  It represents the mining sector, but in general -- but copper is 80 percent of the mining sector.  It represents roughly 20 percent of our GNP, one-third of our fiscal revenues, and almost 40 to 50 percent of our exports, because the price of copper has been so high.

What have we done?  We have decided that it was wise to save during sunny days in order to have enough resources during rainy days.  And we agree on what we call a structural fiscal equilibrium, which means that we don't behave according what the current price of copper is but according to what the long-term price of copper is.  And when the actual price is higher than the long-term price, which is estimated by a committee of experts, not by the government, we are forced to save those revenues.  And therefore, when the price of copper goes below on the long-term trend, we can use those savings to go through the cycle in better way.

Before 2008, we had already been able to save, like, $20 billion, which were used in 2009, half of those were used, to get through the 2008 and 2009 crisis.  And after that, we have been able to recover those savings level.  And right now we do have, like, more than $20 billion in savings, most of them abroad.  And that represents almost 8 percent of our GNP.

By the way, Chilean public debt is negative.  Chile's not a debtor.  Chile's a creditor in the international market.

HILL:  That's why you have the AA rating by Moody's.

PINERA:  Yes.  And therefore, we have to realize that the world is getting very unpredictable.  Economic and financial crisis are getting much more usual, and they are not confined to a given country but they immediately spread all over the world, and you have to be prepared for that.  So savings in rainy days to be able to -- saving in sunny days to be able to be safe in rainy days has been a very good experience for Chile.

HILL:  We are surprised in this country, given how strong your economy is, at the recent demonstrations.  And if we had as low an unemployment rate here as you have there, if we had the growth here that you have there, rather than protests, I think you would be getting accolades.  So help us understand what's going on.

PINERA:  Well, this is what is called the (thermosensation ?), which is what people want or perceive, and there is something which is the real temperature, that you have to read it in the thermometer.  It's true the Chile economy is doing very well in every field, not only growth.  As I told you before, we are growing in the first semester by 8.4 percent.  We hope that we will end the year with something around 6.5 percent, because the second semester would not be as good, for known reasons.

We have created, during our first year, in jobs half a million jobs.  Our labor force is 7 million people, so that represents 8 percent of our labor force.  I think that labor force in U.S. is 150 million people?  So that would represent like creating 12 million jobs in one year, which is not the case of the U.S.  On the contrary.  So -- and not only in terms of growth and jobs, but also in terms of real wages.  They are going up by 2 percent a year.  But we are keeping our fiscal balance and our external balance in a very -- (inaudible).

So why people are protesting?  There are many, many theories about this.  Maybe because during our first year of government, due to the earthquake, things were extremely calm and maybe were accumulating those pressures.  Maybe because people don't realize that we are still halfway on our goal to become a developed country, and they want to get all the benefits of being a rich and developed country right now, immediately, for everybody, and that's something that we cannot give up.  So we have to resist the man-made (towns ?).

Now, what are they asking, the students?  First of all, let me tell you something.  In Chile we have 3.5 million students in schools, and only 200,000 of them have been related to schools that have been --(inaudible) -- students.  And I think that around 70,000 students are really marching and protesting.  And they have the right to do so.  We believe in free speech.  We believe in the First Amendment rights; and we also have our own First Amendment rights.  And we believe that they have the right to manifest themselves as long as they do it within the rule of law.

But those are 70,000 people.  We have 3,430,000 students that are going normally to school.  The problem is that TV cameras don't -- are not interested in them.  (Soft laughter.)  So we have to govern for the whole and the vast majority, not only for a minority.

So what are they asking?  They're asking things with which we are fully in agreement.  They want a structural change, a profound reform of our educational system, to improve the quality of our education.  As I was mentioning before, one of the four pillars that we have to build is specifically to improve significantly the quality of education because otherwise it will be a kind of Damocles sword for our purpose and mission to become a developed country.

On that, we agree a hundred percent, and we are undertaking reform that should have been undertaken long before.  We have committed not only the normal educational budget, but on top of that, we have committed $4 billion, which represent 8 percent of our total public expenditure, to finance the educational reform that we will have to undertake and we are undertaking.

I don't want to bother you with all the initiatives and laws that we have already passed.  But there's some ideological difference.  Many of these students belong to the Communist Party, which is a party -- a very small party in Chile.  They get 5 percent of the vote.  But they are very active and have a lot of influence in the -- in the students' leadership.

They are asking us to get rid of the private sector in the educational sector.  And we don't agree with that.  We believe that if you want to have a real free educational system, you need to have private and public schools coexisting and competing, hopefully with the same conditions.  The government is responsible that -- for guaranteeing the quality of education in both sectors.  We should finance with scholarship or loans -- in the case of school students, our educational system is a hundred percent free, but not in the higher educational level, the universities.  There we have to guarantee, through scholarships and loans, that every student with merit will have access to universities and higher education despite its economic conditions.

And we are doing so with a system that combines scholarships, which means free education, and loans, which means that you have to repay them after you finish your studies.  So there we have a big difference because we don't want to -- the state to monopolize the educational sector.  We think that that would be a threat to freedom, to efficiency, to equality.  And we believe in a free society.  And a free society is much more than the state.  That's (something where we have ?) difference, and we have not given up on that.

The second thing is that they're asking free education for everybody.  We have 1.1 million students in the university level and higher education levels.  So in order to finance that, we would need $7 billion.  Our total public expenditure is about $55 billion, which represents 20 percent of our GNP.  We cannot afford that.  But besides that, it's not fair.  We don't think that it would be fair and just to use taxpayers' money, including the tax paid by the poorest, to finance the education of the richest.  And that's another difference that we have with the students.

But I -- let me tell you good news because today I think that we have finally reached an agreement with them.  And therefore we are -- we are -- we are recognizing that we fully agree that we have to make -- undertake a major structural reform in our educational system, which is long -- is long -- it should have been undertaken a long period of time ago.  But now they are asking -- and they are (young ?) people, and I really appreciate them for that.  They are -- they have idealistic people, but also very impatient people.  They want all the solutions for everybody right here, right now, immediately.  And that's not possible.

So we have to go step by step.  It would be very easy for us to say yes to everybody.  We have $20 billion which may be at risk in European or American banks.  (Laughter.)  We will have to take care of that.  So we could use those foreign savings to say yes to everybody.  But that would be a wrong decision because that would mean bread for today and hunger for tomorrow.

HILL:  Spend a minute on the role of labor unions and the economy and also the role of the labor unions in terms of the protests.

PINERA:  Well, we believe in labor unions and think that they are part of the market economy and they play a very important role.  The manifestation that we have been seeing on TV are basically organized by students.  And they have been very active and they have had very good leadership.  The main leader is a very good-looking girl, and that helps.  (Laughter.)  She belongs to the Communist Party, and she's proposes simple thing:  (key ?) education for everybody.  Education is a right, and therefore the state has to guarantee each of us that we will have access to all levels of education, independently of the socioeconomic -- (inaudible).

But they say it's independent of our performance, and we don't agree on that.  (Inaudible) -- free education, quality education for everybody, and you say, this is something that has to be -- (inaudible) -- by the state.  And education is a right, not a business, and therefore we don't want private sector intervention in the educational sector.  Well, some people think that that's something very good.  And we agree that we should guarantee quality education -- (inaudible).

But one thing's to say, another thing is to do it.  And therefore we have -- we have started to reach an agreement with them in agreeing on a three or four-year plan to really transform our educational sector.

But in the meantime -- and today we have another manifestation.  I think there were 50,000, 60,000 people -- that's a lot of people -- so out of 3.5 million still in this current system and 1.1 million students in the university system.  So the mass majority of Chile's students, 95 percent are going to school regularly and are going to university regularly.  The problem is that nobody knows this, because people are interested in those that are protesting.  That's part of life.  If you bite a dog, that's big news.  If a dog bites you, nobody -- (inaudible).  (Laughter.)

HILL:  Now one last question from me before we turn it over to our members.  Earlier this summer, Chile merged its stock market with Colombia and Peru and creating by market capitalization the second-largest exchange and marketplace -- actually number one by number of companies listed.  How do you see this as helping to increase foreign direct investment?  I mentioned that you had 15 billion (dollars) last year.  And how do you see it as generating growth in the business economy?

PINERA:  Well, foreign investment is very important for us.  Chile's a very open and welcome and friendly country with foreign investment.  We have what is called foreign investment (study ?), which basically's a contract between the foreign investor and the Chilean government by which they have special guarantees.  For instance, if they want, they can fix their tax rate forever.  If they want they can go with whatever the tax rate is in the Chilean economy.

Only the mining sector, which has $70 billion projects moving on, and therefore we need foreign investment -- not only the financial resources, because that's not a scarce (factor ?) in our country -- what we need really is innovation, facilities, entrepreneurship capacity, markets, technology, and therefore most of the foreign investors in Chile are providing not only the financial resources but also these other components which are very important.  And the fact that we have united or unified our exchange -- our stock exchange with Peru and Colombia and we hope that we would do with that Mexico, too, very soon, means that our capital market -- (inaudible) -- more profound and therefore Chilean companies or foreign companies can go to our local markets to raise money for equity or for loans, and therefore that's another advantage to invest in Chile.

HILL:  Excellent.  Well, the first question is from --

PINERA:  What is excellent, the answer or the question?

HILL:  No, the answer.  (Laughter.)

The first question is from Ying Ma of the Hoover Institution in Stanford.

Mr. President, you have spoken of your intention to make Chile the first Latin American country to join the developed world -- I already thought you were there.  What are your greatest challenges?  Do you believe there are any lessons to be learned from the successful development of the Asian Tigers?  And said another way, are there any models that you're looking at now that you would like to try to emulate as you think about the next 10 years?

PINERA:  Well, the Asian Tigers are among the countries that were successful and had the wisdom to go from the underdeveloped world to the developed world.  What have they done?  We have studied those experiences very carefully.  First of all, they invested 30 (percent), 40 (percent), 50 percent of their GNP with foreign savings and local savings for 20 or 30 years, which is something that is needed in order to sustain two-digit growth rate for a long period of time.

Secondly, they invested a huge amount of money in education, and they improved the quality of the human capital through education and training, dramatically, in a very short period of time.  And I think those are the two key -- and third of all -- third -- they realized that to become a developed country has to be a national goal that should unify the country.  And they really were able to pursue that goal for 20 or 30 years, until they reached their goal and they became developed countries.

So we have to study a lot what is happening with the Asian Tigers.  We also study a lot what New Zealand, Australia and some Northern European countries are doing.  And from that, we have set these four new pillars, which is technology and science, innovation and entrepreneurship, quality of education, and also to have a more integrated society.  In Chile, with a 15,000 (dollars) per-capita income, we cannot live with 15 percent of the population in poverty.  And we have -- we are undertaking measures to be able really to defeat extreme poverty before 2013 -- that was our commitment when we run for president -- and also, to set the framework in order to be able to defeat poverty at all during the -- during this decade.

So those are lessons that we have learned.  But we are truly aware that we cannot chant victory -- we cannot sing victory, or chant victory?  How you say?

HILL:  Claim.

PINERA:  Claim victory yet, because we are halfway.  We are in the middle of growth.  And we, in order to get to the summit, we need to keep doing everything right for a long period of time -- at least, this decade.

HILL:  Thank you, Mr. President.

We have a question in the third row, right here, if you'd stand up, identify yourself, please.

QUESTIONER:  Dick Huber (sp), as the president knows only too well.  Let me put a question to you that I did put to the Minister of Foreign Affairs Moreno some months ago.  Chile is a number-one place in another category which very few people speak of.  It's the first country in the hemisphere to have negative population growth.  Now, on the one hand, this is probably a sign of prosperity; but on the other hand, it's a -- it's a potential problem.  And what are you going to do about it?  Are we going to have to find another Vicente Perez Morales -- or Rosales -- (laughs) -- or what?

PINERA:  Well, I know Dick Huber (sp) for many, many years.  He was my boss -- a very good boss -- when I was working at Citibank.  That's many decades ago.

But it's true.  Right now, on average, female are having 1.9 children.  And in order to -- just to keep your population stable, the requirement is 2.1.  And therefore, very soon -- not yet -- our population growth will be negative.  And we are very much concerned with that, because we are -- our government is a pro-life government, and therefore we are trying to help people to make their own decision with respect to family planning.

But we're trying to put some incentives in order to boost fertility and natality.  For instance, we have just extend our (capital ?) benefit for women that are pregnant, so they can stay out of the jobs for three months after the birth of the -- of a -- of a child, and six weeks before. And the government pays their salaries.  So that's a way to promote a natality and the population growth.

We have just extended the benefit, which only applied to one-third of our women labor force, to all of them.  And we have extended that post-birth period from three months to six months because the value of those six months in terms of the health -- physical, emotional and intellectual health of the -- of the -- of the just-born child is extremely important.  And we are thinking about putting new incentive in order to try to avoid that risk and regain a positive growth rate of our population.

And that's something that we are working on right now.  And we are -- within the next few weeks we will put together what we call a pro-family agenda, which will be very powerful.  And I think it's very needed.

HILL:  Right here in the second row, please.

QUESTIONER:  Ralph Buultjens, New York University.  Mr. President, your election signified a major change in the political atmosphere of Chile.  Could you tell us in what ways your administration differs significantly from that of your predecessor?

PINERA:  It's true.  After we recover our democracy -- and I think that was done in a very smart and wise way because it wasn't in the middle of crisis -- (inaudible) -- riots and violence, but it was a kind of political agreement.  We had had 20 years with the same political coalition governing Chile since 1990 until 2010.  One of the main transformation -- of course in Chile you don't have those apocalyptic conflict that we had in the '70s where half of the population wanted to transform Chile in Cuba, and the other half wanted to transform Chile in a Western country.

That's over because we finally learned the lessons.  And we have a very strong agreement with respect to democracy, with respect to economic development and with respect to many other things.  And I would say that the changes were -- I can -- I can -- I think that the figures can speak for themselves.  During the last government the average rate of growth was 2.7 percent.  During our government it's 7 percent.  So we have more than tripled the growth rate of the Chilean economy.

During the last government the average creation of jobs was a little bit more than 100,000 jobs per year on average.  In our government, we have multiplied that by four or five times.  We have been able to increase savings from 21 percent of GNP and investment from 21 percent of GNP, and our target is to get to 30 percent of GNP.  So in terms of facts, the change is very, very dramatic and very recent.

But I would say that the main change is that we don't pretend that we will start all over again.  We will build over what the other governments have already built because they had a lot of merit and success -- (inaudible).  They were able to manage the first stage of our new democratic system in a very wise, prudent way -- tried to integrate everybody, tried not to reproduce again the same divisions that took place in our country in the '60s and the '70s.  They kept the key aspects of the market economy competitive, open to the world.  They kept moving the economy to what's a better and more profound integration with the world.  And they signed a lot of free trade agreements, with the U.S., for instance, with Europe.

And therefore I won't say that one is doing everything in the right way, and the other coalition is doing everything in the wrong way.  That's not the case in Chile.  They did many things which we appreciate, and we are working based on what they did.  The difference is that we think that we have to do much better in terms of promoting a pro-growth agenda, a pro-investment agenda because if you don't grow, you don't -- you will not be able to create jobs enough.

You won't be able to increase salaries.  You won't have enough fiscal revenue to fund the social programs, and therefore we felt that the time had come to recover what was once called the "Chilean Miracle," and recover our growth capacity, our job-creation capacity and to increase -- and for that you have to (incentivate ?) investment and savings.  And therefore we are doing what has to be done, given the conditions that we're facing today.

But if you take into account what has happened in Chile in the last 21 years, after we recovered our democratic system -- even before that -- because normally when you go from a military government to a democratic government, normally it's done in terms of political crisis, economic (cause ?), social violence.  That was not the case in Chile.  And I think that that's the -- (inaudible) -- of everybody, the -- what we called the (Concertacion ?).  We were in power for 20 years.  They did a very good job at that.  They were extremely important in recovering our democracy, and they were very prudent and kept the good aspects of what was built during the military government and changed what had to be changed.

For instance, Chile today is a fully committed country with human rights, in everywhere, in every circumstances.  And therefore I think that countries have to be built step by step.  So we recognize what they did, but we are doing in some respects what they didn't do -- (inaudible).  But at the same time, each time has its own challenges, and therefore I will say that the change was needed in Chile, because after 20 years I think that the ideas, the forces were very much exhausted.  And the new government came to power with new ideas, with new commitment, with new forces -- and the results are there.

HILL:  Now we have time for one, maybe two questions.  So -- maybe not?  One more question in the back, please.

QUESTIONER:  Dave Rame (ph) from Reuters New Agency.  Mr. President, you talked a bit about your ambitious plans for growth in the next few years.  And obviously 6 percent would be a huge achievement.  You've also talked a lot about the need to reduce poverty in Chile.  And one of the questions we have would be whether or not in the coming year, if you're prepared to ramp up public spending to match GDP growth, the same percentage rate.

Another question you've addressed today several times has been the issue of investments in Chile.  During your election campaign, you promoted the idea of allowing private investment into the mining giant Codelco.

PINERA:  What?

QUESTIONER:  The mining -- the mining firm, Codelco.  You talked about bringing private investment into the firm.  But it seems that since then, you've back away from that.  Can you say why?

HILL:  And then that will be it.

Mr. President?

PINERA:  Well, the first part of the question, really, we are trying to (compatiblize ?) high growth with a better income distribution and a more (efficient ?) type of poverty.  We are doing that using two kinds of resources or -- (inaudible) -- just like the two blades of a scissor can cut a paper.

The first one tried to address the real causes of poverty and inequality, which in my view are many, but the most important one is the lack of good employment opportunities for the poor and the lack of good education for the poor.  And we are working very hard on those two areas, and we have already talked about that.

But at the same time, we're using the other blade of the scissors, which will produce -- (inaudible) -- much faster.  And we have said and put a product which we call "ethical family income."  Basically, we go to each family living in poverty and we estimate what is their own incomes.  And we compare that with the poverty line.  (Inaudible.)

And therefore we make a kind of strategic alliance with each and every one of those families.  We say, look, if you want to help yourself, we are going to help you.  So we will provide that difference, but subject to some conditions and requirements and commitments on the part of the poor families to send all the children to school, that their attendance at school has to be 85 percent or more; if they increase their grades, if they improve their grades, they get more help.  If they look and find jobs, they get more help, if the (health controls ?) are up to date.  So we are basically incentivating them to help themselves.  And that has been very successful.

With respect to copper, according to our constitution, Codelco has to be a hundred percent a public-owned company, and we don't have any plan to change that part of the constitution.  But Codelco has to expand.  Codelco represented 80 percent of corporate production 20 years ago.  Now it represents one-third because the private sector has grown -- has been growing very rapid.  So we want to increase the quality and the capacity of Codelco to improve their efficiency, their technology, to have a better approach to environment and things like that.

That's why we are really willing to consider the alliances between Codelco and other mining companies, to explore possibilities not only in Chile but also abroad.  And therefore, without changing the nature of Codelco, we want them to be able to become an international player in the mining sector, and not only producing minerals, but also what the -- (the feeling ?) to transform Codelco not only in the mining producing company but also in a very strong company in terms of technology, innovation for the mining sector.  And that's a big challenge where we are willing to consider strategic alliances with top players in the world in the mining sector.

HILL:  Mr. President, just as you're looking for models around the world where you can shape your growth, there are a lot of lessons to be learned from what you've accomplished that we could all benefit from.

I want to thank you for joining us today.  It was informative and also fun.  thank you.

PINERA:  Thanks a lot.  (Applause.)

.STX

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