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Pinera Signs Bill to Scrap Copper Funding for Chile Military

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May 16 (Bloomberg) -- Chilean President Sebastian Pinera plans to send a bill to Congress in the coming days that would scrap the payment of 10 percent of state copper company Codelco’s sales to the armed forces.

Pinera, Finance Minister Felipe Larrain and Defense Minister Andres Allamand signed the bill during a ceremony today at the presidential palace in Santiago.

Pinera, who unseated the Concertacion coalition that had governed Chile since Augusto Pinochet ceded power in 1990, seeks to end the law that was created by the late dictator. The current mechanism creates distortions, Pinera said today.

This bill “leaves aside the armed forces’ dependence on the price of copper for its revenue,” Larrain told reporters. “Today we’re in a positive cycle of high prices; we may not have such a bonanza in the future.”

Codelco, the world’s largest copper producer, had sales of about $16 billion in 2010 when copper prices averaged $3.42 a pound, according to central bank data. The metal will average $4.20 a pound in 2011, the central bank forecasts.

Under the new bill, the armed forces would establish 12-year strategic plans and operate under four-year budgets. A contingency fund will be created for extraordinary situations that may include natural disasters, Pinera said.

Invest Offshore

The Finance Ministry took over management of the military’s copper fund from the Defense Ministry this year. The government will invest military savings from state copper sales offshore to help prevent further local currency appreciation, Finance Minister Felipe Larrain said Jan. 25.

Pinera’s predecessor, Michelle Bachelet, also tried to scrap the law, under which Codelco turns over its profits to the government after discounting the military’s share of its sales. Pinera may succeed with the bill in part because the Concertacion will struggle to block a proposal it previously promoted, Patricio Navia, a specialist in Chilean politics at New York University, said.

“The Concertacion will not oppose the legislation,” he said in a telephone interview from New York on May 2. “They will ask for more and try to put more government oversight over military funds.”

The peso weakened for a second day, declining 0.6 percent to 470.24 per dollar at 12:22 p.m. New York time from 467.56 on May 13.

To contact the reporter on this story: Randall Woods in Santiago at rwoods13@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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