Sound mind, sound body: Chile pays big bucks to keep diseases out and kids in school.

Chile wants to make sure that all its citizens are safe from scores of serious illnesses. It wants better primary education, more low-income students enrolled in a university and to generally improve the overall education system by extending the school year. To meet its goals, the government is jacking up spending in healthcare and education this year. And it needs the private sector's help.

The new president who takes office in March will inherit a budget that is 6% higher than the one from 2005. That's due to "solid public finances and rigorous economic activity," Finance Minister Nicolas Eyzaguirre said as he unveiled the spending package before Congress in September. According to government estimates, spending will exceed US$28 billion this year.

When it comes to public health, the government's healthcare reform, a $3.40 billion program known as Plan Auge, will draw 11.2% more this year than last. The government hopes increased healthcare spending will ensure treatment for 15 serious diseases, including stomach and prostate cancer as well as leukemia for people age 15 and older, bringing the total number of illnesses covered to 40 by 2006. Plan Auge aims to guarantee coverage of 56 diseases by 2007.

Treating such illnesses requires medicine, medical equipment and other inputs that will cost the government $276 million a year according to Cenablast, the government's primary healthcare purchasing body. Of that total, $130 million will buy pharmaceuticals, a figure that could grow to $180 million in order to live up to Plan Auge's goals in 2006. Chilean laboratories will account for 85% of those purchases. Yet, while business has been good, many are cautious. "We don't know whether this increase in government purchases will really reflect in our sales," says Maria Angelica Sanchez, executive vice president at Asilfa, a Chilean pharmaceutical association. While there are labs in Chile that sell 90% of their products to the government or to public healthcare institutions, such as Sanderson and Biosano, competition from abroad is on the way, Sanchez says.

About 15% of the pharmaceutical companies selling to Cenablast are foreign, although that figure could climb since the Health Ministry's stated objectives include buying cheaper medications made in India and China. For Sanchez, such inevitable competition is not necessarily a threat to the domestic pharmaceutical industry as long as imports live up to World Health Organization standards, as Chilean drugs do. Prices will have to be really low to compete with domestic producers. "What we have here is that Chile's average prices are low but it's difficult to find these prices attached to quality products," says Sanchez. Asilfa data from 2004 puts Chile's average per-box price of pharmaceuticals at $3.90, the cheapest in Latin America after Uruguay, where the average price comes to $3.28.

The Plan Auge also calls for more purchases from medical equipment providers, covering goods such as X-rays, scanners, ultrasound equipment and other supplies, which are often shipped in by companies such as Siemens and GE Healthcare. Including sales to private hospitals, the medical equipment market will post $40 million in revenue this year, says Bernado Nehm, head of the medical division at Siemens in Chile. "The most important client is the public sector," says Nehm. "The Health Ministry is a case in point; it bought four Siemens angiographs for four big hospitals across the country."

School's in. Since 2000, the Chilean government has set aside funds to provide 120,000 new students with basic education, and in 2006 that goal will be met once government creates 21,826 new preschool slots for low-income families. The 2006 budget includes $672 million to bring those new students on board as well as another $290 million developing the infrastructure necessary to handle such programs. University-level students will also see some support, as the government will provide a full ride for the first year of the country's smartest yet less affluent students.

Small companies largely supply the Education Ministry with school furniture, teaching materials and textbooks. Yet deep pockets aren't the only thing bringing in smaller companies to the government. Convenience is too. Chile-Compra, an online procurement platform for public-sector purchases and contracts, opened for business in 2003. As of July 2005, 130,000 companies were doing business on the portal, 30% of which had signed definitive contracts with the government, which by law must make bidding available online. "Registering is simple. The company, or the individual supplier, only has to provide a minimal amount data to register. Each public entity can make an evaluation at the moment of purchase," says Alex Pesso, ChileCompra's vice-director.

The online platform finished 2004 with 270,000 operations registered and $1.90 billion worth of transactions completed. The pace appears to be picking up. At the end of the first half of 2005, $1.11 billion in deals alone had taken place on the site. The number of bidders per auction has risen to five today from 1.7 in 2002. "That's no small number and it allows public institutions to buy [goods and services] more efficiently," says Pesso. According to Chile-Compra data, increased purchasing efficiency saved the Chilean government $70 million in 2004.

Modern technology has also served as a trampoline for the country's small business, including those like Muebles Gacitua, which makes furniture for schools. While private schools account for 70% of company revenue, sales to public schools are expected to grow now that the company has found CompraChile, says Guillermo Perez, head of sales for Muebles Gacitua. "We are ramping up that for these days," Perez says. A Santiago Chamber of Commerce study conducted in August 2005 found that small businesses have become the second-largest drive behind CompraChile's sales, accounting for 24% of total sales in 2004. That's quite a figure considering such businesses contribute just 13% of the country's gross domestic product. During the January-April period of 2005, small businesses made up 30% of CompraChile's total sales, while big companies still accounted for 60% of total sales.