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Sebastián Piñera tries to put Chile back on track

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A former president returns, with reforms on his mind

In his first term in the Moneda palace between 2010 and 2014, Sebastián Piñera, a billionaire businessman of the center-right, oversaw rapid economic growth but failed to inspire popular affection due to a lack of charisma.

After an interlude in which Chile swung left under Michelle Bachelet, Piñera has been back as president since March. Second terms often disappoint—Bachelet’s did—but Piñera says he has learned from experience. “There’s no better school for being a good president than La Moneda,” he says. “The second time you know better what you have to do and how to do it.”

What he has to do, he says, is to restore economic growth, improve the quality of Chile’s democracy and promote equality of opportunity “so that nobody is left out”. This agenda is similar to that of the Concertación, the center-left alliance that ruled Chile for 20 years after General Pinochet’s dictatorship, the last four of them under Bachelet in her first term, from 2006 to 2010.

In her second term, between 2014 and 2018, she junked the Concertación, allied with the Communist Party and declared that reducing inequality was her priority. She pushed through reforms, many poorly designed, of education, tax, the electoral system, and labor relations. Businesses took fright; partly, as a result, economic growth averaged just 1.7% in 2013-17, compared with 5% in Piñera’s first term.

The president has taken advantage of the opposition’s leftward tilt to seize the centre ground. Voters seem to support the “Chilean model” of market democracy that his programme embodies. In a recent poll, almost 70% said they were much better off than their parents, but 52% said they favored more equality.

Rather than “what to do”, the trickier thing for Piñera will be “how to do it”. He must govern with a congress in which he lacks a majority and in which the far-left Broad Front has a significant presence for the first time. The money will be fairly tight. Government debt, while still low at 24% of GDP, has doubled in each of the past two governments. Felipe Larraín, the finance minister, says that his aim is to “stabilize” the country’s debt and cut its fiscal deficit from 2.8% of GDP in 2017 to 1.6% next year.

The government is proposing a tax reform that partially undoes Bachelet’s by making investment tax-deductible. It is relying mainly on faster growth to make up any shortfall in revenues and to finance an ambitious pension reform which will add a more generous top-up of public money to a pioneering but widely disliked private-pension system.

Larraín says he expects the tax reform to be approved by mid-2019. Pension reform will be harder. Much depends on the government’s skill in negotiating with moderates in the opposition. In his first term,  Piñera struck many Chileans as arrogant. Now he seems more astute and decisive. “The general approach is good but the devil will be in the detail,” says a former Concertación minister. “Part of the right is still inclined to listen only to business. He has to convince the opposition that he sees beyond special interests.”

Two things could yet derail Piñera. The first is that he risks having raised expectations that he cannot meet. Economic growth has picked up this year. Investment is up by 6%, says the president. But the context is less favorable than in his first term. “They say that Bachelet used the world economy as an excuse, and now they are using it,” says Heraldo Muñoz, who leads the opposition Party for Democracy.

The second trap is social conflicts, such as those with radical students which bedeviled his first term. Last month police tried to cover up the murder of a member of the Mapuche, an indigenous people. That followed a string of scandals—ranging from planting evidence to corruption—in the Carabineros, the once-revered police force.

The army is no better. Some officers have been found to have stolen public money; others have sold arms to drug-traffickers. “They have had too much autonomy,” Piñera concedes. He may be better placed than his opponents to turn these scandals, which are a legacy of the dictatorship, into an opportunity for reform.

He has sent a bill to modernize the police to Congress and plans another for the army.

With the opposition fragmented and populists to his left and right, many Chileans wish Piñera well.

If his government is successful, he may usher in a long period of dominance by the centre-right. If so, it will be because he has stolen the Concertación’s clothes.

Source: Economist

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