Chile: critical test looms on inequality

It was hardly the future that Chileans imagined. During his first term as president, in 2011, Sebastián Piñera had told the Financial Times that he expected the country to graduate from emerging market to developed nation status by 2020. But, just a few months before that target date, rioters turned the centre of Santiago into a war zone, setting fire to offices, metro stations and churches in a wave of destruction that then gave way to weeks of tumultuous protests.

The events of October 2019, which Chileans refer to as “el estallido” (the explosion) are set to have lasting consequences for a nation that was hailed as one of Latin America’s success stories. Most significantly, there will be a new constitution. Elections next month will select delegates to a constitutional assembly, which will spend about a year drafting a carta magna to replace the current document, dating from the military dictatorship of General Augusto Pinochet. 

“It’s a big test for Chile,” says Felipe Larraín, who served as finance minister until he left office in a reshuffle triggered by the protests. “Are we able to move forward in a way that doesn’t derail our path of development with . . . gradual moderate changes that improve the livelihoods of Chileans but don’t throw away the base which provides [these livelihoods]?”

A plethora of little-known candidates has created uncertainty over the likely composition of the assembly but Chileans favouring gradual change draw comfort from rules that stipulate a two-thirds majority for the new charter.

Juan Pablo Illanes, the former editor of El Mercurio, Chile’s leading newspaper, says the country appears to be divided in roughly equal proportions between three groups: the centre left and centre right, which have dominated politics since Pinochet, and the hard left. “The most likely outcome is that the traditional left and the traditional right win two-thirds between them,” Illanes says.

We said this country was like a pressure cooker waiting to explode — and it exploded

This idea is calming the business lobby. “We’ve seen an improvement in the mood,” says a Santiago banker. “At one point, parents at schools were talking about moving their families to Miami. Now, it appears there will be a good group of moderate people elected who will be able to . . . block things that don’t make sense.”

Provided the constitutional assembly springs no major surprises and the price of copper, a key export, stays strong, the Chilean economy appears set for a rebound. The IMF expects GDP growth of 6.2 per cent this year, enough to return output to pre-pandemic levels, and some forecasters are even more bullish. 

The recovery is being powered by one of the world’s fastest vaccination programmes and Chile has also deployed one of the developing world’s most generous Covid-19 relief packages, worth 10 per cent of GDP in direct fiscal support, according to the finance ministry.

Once the pandemic subsides, however, attention is likely to return to the inequalities and deficiencies in public services that triggered the estallido, as well as the subsequent violence. Jean-Christophe Salles, Latin America CEO of the pollster Ipsos, says crime and violence are the top concern of most Chileans, ahead of poverty and inequality. Coronavirus only features in fifth place.

These matters will also dominate the presidential elections in November. Billionaire incumbent Piñera cannot run again and, for the first time in decades, the communists are likely to mount a serious challenge in the form of Daniel Jadue, the mayor of a Santiago neighbourhood. “We said this country was like a pressure cooker waiting to explode — and it exploded,” says Camila Vallejo, a Communist party congresswoman. She points to inadequate pensions, excessive working hours and unacceptably big gaps between rich and poor as factors that must change in an overhaul of the economic model.

The Chilean economic miracle, which lifted the country from one of Latin America’s poorest to one of its wealthiest in four decades is for Vallejo “an image sold [abroad] of a part of Chile, that part born in a golden crib, which was always favoured by neoliberalism”.

But, even if Chile does not opt for the hard left, a populist president remains a distinct possibility in November. One politician doing well in early polling is Pamela Jiles, a former TV anchor who promoted legislation that allows Chileans to pull money from their pension pots to spend during the
pandemic, despite warnings that this would exacerbate the problem of inadequate pensions.

“The risk of populism is not just a risk, it’s already here,” says Larraín. “We have had two early withdrawals of funds from the private pension system and a third is on its way in congress.”

A wave of populism or a vote for the extreme left could upend Chile’s reputation for moderation and prudence; electorates across Latin America appear unusually fickle amid the pandemic.

Meanwhile, talk of becoming a developed nation has been replaced by more pressing concerns: how to improve pensions, education and health, and raise workers’ living standards.

“The pandemic will leave many fissures in society,” says Ignacio Briones, who is running for the presidency on a centre-right ticket after a stint as finance minister. “There are deep splits [between rich and poor] which will need to be addressed . . . the only way to do this is through negotiated accords.”