May 21 (Bloomberg) -- Chile's President Michelle Bachelet said the government will increase spending on energy and promote hydroelectric power in a bid to end shortages that threaten economic growth.

In an annual address to lawmakers, Bachelet said Chile will develop ethanol from woodlands, consider plans for solar power plants in the desert and encourage hydroelectric development. The government will increase spending on infrastructure such as roads, ports and dams by 60 percent this year, and set up a $6 billion fund abroad to finance overseas study, she said.

Economic growth this year will slow to as little as 4 percent from 5.1 percent in 2007 on record prices for oil imports -- the source of almost all Chile's petroleum -- a natural gas shortage and a drought that's reduced power from dams, Bachelet said.

``We will be able to generate more electricity with greater security and lower prices,'' Bachelet told lawmakers in Congress. ``We can't give ourselves the luxury of not tapping resources for electricity generation.''

Bachelet, 56, took office in March 2006 and her four-year term ends in 2010. Chile's constitution forbids her from seeking a second consecutive term. Bachelet promised cheaper electricity by the end of her government as a liquefied natural gas plant at Quintero, 68 miles from Santiago, starts operating.

Slowdown, Drought

Chile's economy in March expanded at the slowest pace in almost six years.

The worst drought in 50 years has cut hydropower reserves as natural gas shortages curtail output by generators, causing a slowdown in economic activity and industrial output, the National Statistics Institute said April 30.

Mines in northern Chile are vulnerable to blackouts at any time because utilities are replacing natural gas with diesel to run generators, increasing the risk of equipment failure.

In central and southern Chile, where Codelco, Antofagasta Plc, Anglo American Plc and Freeport-McMoRan Copper & Gold Inc. have mines, between 45 percent and 70 percent of the electricity comes from water turbines.

Recent rainfall hasn't been enough to forestall power cuts, Energy Minister Marcelo Tokman said this week. Senators last week said the government should consider introducing nuclear power.

Bachelet's announcements on energy were vague, opposition Senator Juan Antonio Coloma of the Independent Democratic Union party said in a phone interview. ``We had hoped for much more concrete, precise proposals,'' he said.

The president failed to address fuel prices, he said. Senators from government and opposition parties earlier this week called for the government to cut taxes on fuel.

Outlook

In 2008, Chile will spend $68 million on dams and irrigation, a 70 percent increase from last year, Bachelet said. Her government has invested $750 million in roads, ports and airports, she said.

Chile will spend more on education, including projects to sponsor scientific research and increase scholarships for postgraduate study at foreign universities, she said.

Interest payments from a new $6 billion fund will allow 30,000 graduates to study abroad in the next decade, the finance ministry said in a statement e-mailed after Bachelet's speech. The so-called Bicentenary Fund will be invested outside Chile, the ministry said. Next year, Chile celebrates 200 years of independence from Spain.

From March next year, the government will start giving out more than 30,000 computers to seventh-grade pupils from poor families, Bachelet said.

``One day we want every child in Chile to have their own computer,'' Bachelet said.

The government will also seek to boost exports by easing access to credit for small- and medium-size companies and reducing bureaucracy, Bachelet said.

A new system of state pensions will end poverty for the elderly, Bachelet pledged. The government will hand a 20,000- peso ($42) bonus to 1.5 million pensioners to combat rising food and fuel prices, the president said.

The government will subsidize 720 kilometers of fiber-optic cable, along with $120 million of private investment, to improve internet and phone connectivity, Bachelet said.

Bachelet's speech lacked concrete measures to revive the economy said Senator Hernan Larrain, president of the opposition Independent Democratic Union party. Chileans would have liked ``more self-criticism and less self-complacency,'' he said in comments broadcast on Television Nacional.

To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

Last Updated: May 21, 2008 17:07 EDT