By Nathan Gill and Sebastian Boyd

     Sept. 5, 2008 (Bloomberg) — Chilean President Michelle Bachelet authorized the use of emergency funds to shore up Santiago’s public transport system after a loan to the system of buses and subway lines was declared unconstitutional.

     This is the first time since Chile returned to democracy in 1990 that the government has used emergency funds, government spokesman Francisco Vidal said today. The decree will free up as much as $850 million for the system known as Transantiago, Finance Minister Andres Velasco said.

     “This certifies that Transantiago is a public calamity,” said Victor Perez, a senator and general secretary of the opposition Independent Democratic Union party. “It’s recognition that Transantiago is a failure.”

     The president acted after Chile’s Constitutional Tribunal blocked a loan to the transit system. Chile’s constitution allows the government to spend the equivalent of 2 percent of the annual budget on natural disasters and basic services “that cannot be paralyzed without grave prejudice to the country.”

     The decree can be financed out of the existing budget and won’t mean 2008 spending grows faster than the 6.8 percent he announced in July, Velasco said. The Finance Ministry estimates that the government will spend $250 million less on fuel subsidies than it had expected as oil falls below the $130, he said. There will be no cut in social spending, he said.

Flaws, Shortages

     Government ministers have blamed opposition intransigence for their inability to fund the system through other means. The government will keep pushing for a transport finance bill for the whole country, Interior Minister Edmundo Perez Yoma said.

     Flaws in design and implementation have dogged Transantiago since its launch in February last year. Within a month, commute times doubled because of shortages of buses and subway trains, leading Bachelet to fire the transport minister who had overseen its launch.

     There are still between 600 and 700 fewer buses than needed on Santiago’s streets, the current Transport Minister Rene Cortazar said on Aug. 30. He had earlier threatened to strip bus companies of their concessions if they don’t increase the number of vehicles on the road.

     Bachelet “is trying to transmit confidence to the people,” government spokesman Vidal told reporters gathered at the presidential palace. “The calamity would be if fares increased.”

     The government will still be able to find money in the event of an earthquake or other natural disaster, he said.

`Biggest Problem’

     Transantiago’s administrators sought a $400 million Inter-American Development Bank loan after posting an $88 million loss in the first quarter of this year. The Constitutional Tribunal said on Sept. 3 that it had ruled that loan unconstitutional.

     Bachelet’s approval rating fell to 42 percent last month, below the 46 percent of Chileans that disapprove of her government, according to a survey published today by Adimark GfK.

     Transantiago is “without a doubt the biggest problem facing the government,” the pollster said, after 11 percent of respondents said they approve the way Bachelet has managed the system and 80 percent said they disapprove. Adimark polled 1074 Chileans from Aug. 7 to Aug. 30. The survey has a 3 percent margin of error.