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UPDATE 3-Chile's Pinera unveils business-heavy cabinet

* Pinera names Felipe Larrain next finance minister

* Cabinet made up of businessmen, technocrats, academics

* Pinera picks former political foe as defense minister (Updates with finance, defense minister comments)

SANTIAGO, Feb 9 (Reuters) - Chilean president-elect Sebastian Pinera named a cabinet of business leaders and academics on Tuesday, with economist Felipe Larrain as finance minister tasked with luring investment through tax breaks and subsidies.

Pinera, a billionaire businessman, tapped leaders from Chile’s prosperous retail sector as well as lawyers and economists to help steer one of Latin America’s most stable economies.

During the election campaign, Larrain, 51, a professor at Chile’s prestigious Universidad Catolica, told Reuters he will seek to create a “virtuous circle,” boosting growth to stimulate job creation and in turn demand, which fuels growth. [ID:nN11163285]

Pinera has vowed to boost economic growth to 6 percent a year, create 1 million jobs and reform state companies like No. 1 global copper producer Codelco [CODEL.UL] to make them leaner and more efficient. [ID:nN09132717]

“(We must) recover our capacity for growth and job creation,” Pinera said in an address to his future cabinet and their relatives and guests in the patio of a museum that was Chile’s first government house.

“Let it be clear that ... we will strengthen the state, not weaken it, because in many areas we need a stronger, better state,” he said.

Pinera’s critics say his plan relies too heavily on private investment and depends on uninterrupted recovery from the global financial crisis underpinning demand for copper, Chile’s main export and revenue earner, particularly in China. [ID:nN19233132]

Planned corporate tax breaks include an accelerated depreciation program as well as delays in tax payments for small and mid-sized companies. However, few expect any major changes to policies that have made Chile one of the emerging world’s most stable economies.

“Small and medium-sized companies are a central element of this government,” Larrain told a news conference after his appointment.

“We are going to implement policies that help them, not just in financial terms ... but to help win share of foreign markets,” he added. “We also want to strengthen entrepreneurship.”

Chile’s central bank has estimated that the economy shrank 1.9 percent in 2009, and forecasts an expansion of 4.5 percent to 5.5 percent in 2010 as the nation emerges from its first recession in a decade.

Pinera appointed his campaign chief, lawyer Rodrigo Hinzpeter, as interior minister, and Alfredo Moreno, a director of retailer Falabella FAL.SN, as foreign minister.

For defense minister Pinera tapped a former minister from the rival coalition that he defeated in a January presidential run-off, ending 20 years of center-left rule.

Lawyer Jaime Ravinet had served as defense minister under a previous government of the ousted coalition. He said he had reluctantly resigned from his Christian Democrat party, which described him as a “black sheep” for joining Pinera’s cabinet.

“I made pledges during the campaign, the first of which was to form a national unity government,” Pinera said. “It will embody a new form of government that reestablishes the culture of doing things well, honestly and with a sense of urgency.”

Laurence Golborne, former chief executive of diversified retailer Cencosud CEN.SN, was chosen as mining minister and respected economist Cristian Larroulet was named Pinera's chief of staff. (With reporting by Fabian Cambero, Alvaro Tapia and Bianca Frigiani, editing by Anthony Boadle)