The return of conservative businessman Sebastián Piñera to the Chilean presidency in March 2018 is best understood as a necessary course correction in Chile’s democratic development. The election of Piñera, who had been president from 2010 to 2014, was not the crushing rebuke of the left that his conservative backers had vainly hoped for or, as some might misconstrue it, a sharp turn to the political right. Piñera’s coalition may still harbour a diminishing coterie of supporters of the late dictator Augusto Pinochet, but this election, the seventh consecutive national vote since the end of the dictatorship, proved – if proof was even needed – the strength and durability of Chilean democracy today.
The “centre-right” Piñera, whose allies comprise big and small business, professionals, conservative workers and farmers and the above-mentioned pinochetistas, faces a left-leaning majority in Congress which will influence the direction of his government for his current – and unrenewable – four-year term. This majority is composed not only of his traditional “centre-left” opponents (the Socialists, Party for Democracy, Christian Democrats, etc.), but also a new, more radically inclined left faction, Frente Amplio, or Broad Front, which arose from a variety of student and citizen activist groups over the last decade.
Better economic management with more social equality
Piñera’s predecessor, Michelle Bachelet, championed an agenda that focused on combating Chile’s still deep-seated economic inequality. Bachelet’s opponents liked to characterize her hard-driving reform agenda as a bulldozer and wished to see a tough electoral repudiation. But today Bachelet’s political legacy in some respects appears durable. In effect, Chilean voters chose a more businesslike chief executive to manage the country’s ongoing social welfare agenda. The election can even be seen to counter trends elsewhere in the world. Rather than accentuating extremes, the election has produced a political alignment that balances improved economic management with a desire for more social equality.
From the end of the Pinochet dictatorship in 1990 to the beginning of Bachelet’s second term in 2014 (she had been president from 2006 to 2010), Chile’s economy grew an average of more than 5 per cent annually, and the numbers of those in poverty declined from 40 to approximately 8 per cent of the population. Chile has a growing middle class, but the gap between the richest segment of the population and its poorest, as reflected in the benchmark Gini coefficient, was still pronounced in 2014. Bachelet aimed to tackle what she and her supporters saw as longstanding inequity through education reform, tax restructuring and constitutional change.
None of this was going to be simple. The climate for introducing reforms was not helped by one of Bachelet’s senior ministers who announced intemperately that Bachelet was going to take a retroexcavadora (the marvellously descriptive Spanish word for a backhoe) to the foundations of the post-Pinochet polity. Education reform raised the ire of the owners of the deeply entrenched Chilean private school system. Tax changes, which aimed to shift taxes to the owners of companies rather than the companies themselves, cast a chill over access to capital for corporate reinvestment. And constitutional reform consultations bogged down in paranoia that Bachelet’s ulterior motive was to undermine property rights.
Complicating Bachelet’s difficulties further was the end of the commodities supercycle that had held primary materials prices aloft after the 2008–09 recession, largely fuelled by the continuing economic growth of China. Copper comprises half of Chile’s exports and, coinciding with Bachelet’s election, its price dropped from nearly $4 to about $1.50 per pound. Chile’s economic growth dropped accordingly, to well below 2 per cent annually.
The final deflation of Bachelet’s popularity came with a series of scandals. Her son and daughter-in-law were implicated in a real estate speculation and influence-peddling scandal, and a widespread political fundraising scheme was exposed in which one of Chile’s iconic companies, SQM, suborned virtually every political party with secret campaign contributions.
But for all the government’s travails, and despite the often improvisational manner in which it introduced reforms, the reforms began to take hold and won over important parts of the population. The Chilean primary and secondary school system has three tiers: public schools, which instruct 20 per cent of the student population; state-subsidized private schools, with 65 per cent; and wholly private schools, with 15 per cent. The chief aim of Bachelet’s educational measures was to convert the state-subsidized private schools into public schools and, critically, to remove the burden on middle-class families of the high tuition fees these schools charged. Moreover, lacking the budget revenues to fulfil its promise of free university and college education, Bachelet’s government settled on the interim measure of providing free postsecondary education to 50 per cent of the “most vulnerable” – that is, lowest-income – population.
Despite all manner of administrative upheaval, the upshot of these changes was to extend significant benefits to low- and middle-income Chileans. So well had these changes begun to take hold that Piñera promised early in his election campaign that he would not roll them back. It is a promise that he seems to be honouring.
A major plank of Bachelet’s reforms was to raise Chile’s level of taxation to that of the median in the OECD, of which Chile is the only South American member. Most political actors shared this objective but the controversy surrounding implementation seriously undermined her government’s reputation for administrative competence.
The main measure involved imposition of a tax on business intended to raise revenue equivalent to about 1.5 per cent of Chile’s GDP. But the effect was that the funds once earmarked to support new business activity would instead be used to pay personal income tax bills. This disincentive to investment was at least partly responsible for a sharp decline in Chile’s rate of capital formation during the Bachelet administration.
Piñera remains committed to tax reform but plans to ask Congress to approve a plan that will remove tax on income destined for reinvestment. Characteristic of the readiness in some business circles to ensure that tax adjustments are not seen as a sop to the wealthy, the head of Chile’s small business gremio (representative association) recommended an increase in the top rate of tax on higher-income individuals to 40 per cent from 35 per cent. The centre-left, as well as the centre-right, remains committed to a formal limit on the size of deficit the government can run. Although Bachelet’s finance ministers fiddled at the edges of that rule, allowing net public debt to rise, total government debt currently stands at about 23 per cent of GDP, among the lowest in the OECD.
Bachelet’s proposed major overhaul of the Chilean constitution is effectively a dead letter under Piñera’s administration. There appear to be few who regret setting it aside. Bachelet sought to wrest Chile’s central law from its association with the Pinochet dictatorship. The current constitution is part of the grand bargain that led to the reestablishment of democracy in 1990. Some of its political constraints have already been removed, most importantly rules that had favoured the forces of the centre-right. Elimination of the binominal system was indeed an important factor in the left attaining an effective congressional majority in the current Congress.1 Beyond this practical amendment, it was difficult to discern what concretely Bachelet wanted to achieve through a wider constitutional reform.
Astonishingly for some, Piñera has actually pursued a progressive social agenda of his own. Before the country went on holidays for the annual Fiestas Patrias (September 18 is Chile’s Independence Day), Piñera coaxed through Congress a law permitting Chileans aged 14 and over legally to declare their own gender. He announced plans to make all private employers offer daycare for preschool children aged two years and older. And he pushed through a law to increase Chile’s minimum wage and establish a schedule for regular raises.
These may represent quick wins in what is likely to remain a challenging social policy scenario. The issue that most mobilized the citizenry in the late innings of Bachelet’s term was the perceived low payouts to beneficiaries of the pension system. Chile’s main pension scheme comprises some six private funds, Administradoras de Fondos de Pensiones (AFPs), to which Chilean workers are required to contribute, with their contributions supplemented by employer payments,. The system was established as part of the Milton Friedman–inspired economic reforms of the Pinochet era. The AFPs were to manage workers’ savings and generate an adequate pension income on retirement.
Workers’ disappointment over the size of pensions for which they are eligible has driven the demonstrations filling the streets of Santiago and other Chilean cities since 2015. On average, the funds are providing a pension equivalent to only about 38 per cent of preretirement earnings. But rather than being attributable to bad management as protestors claim, the low returns are more a reflection of the economic circumstances of the pension holders and of the country as a whole during the period of capital accumulation. Although Chile’s middle class has been growing since the reestablishment of democracy, this growth has been gradual and, for many individuals and families, sporadic. As a result, contributions to AFPs have been variable as well.
The depth of this expectations gap is one of the key challenges Piñera faces. On this issue there are parallels with the Canada Pension Plan (CPP). Initial actuarial projections made in the 1960s were wildly overoptimistic about the payroll tax required to underwrite promised CPP benefits. For many years, Canadian politicians avoided the politically painful choice of reducing benefits or increasing the required payroll tax. It is unclear at this time how Piñera will manage his pension problem. In the absence of a well-articulated plan to secure the livelihoods of older citizens, social unrest could severely damage his presidency in the same manner as student demonstrations demanding education reform did during his 2010–14 term.
Piñera’s economic managers have been quick to underline the resurgence of the Chilean economy since his reelection. Bachelet’s finance ministers denied that the tepid growth during her presidency had anything to do with poor management. As copper prices gradually rose throughout her four-year term, they eagerly pointed to las verdes brotes (the green buds) of imminent growth. But those buds never opened. From an average below 2 per cent, GDP growth in the last two quarters has surged above 5 per cent. Clearly, the arrival of Piñera in power has lifted business confidence and opened some investors’ coffers.
Unfortunately, unemployment rates have not begun to fall. The rate was 7.3 per cent in August, the highest since 2011. The persistently high unemployment rate in the face of GDP growth is partly attributable to more people entering the job market. There has been growth in numbers employed, but largely in self-employment, where average monthly income is $772, well below average salaried income of $1,047. Piñera is faced with managing a growing economy that nonetheless has weak formal employment growth, a phenomenon not exclusive to Chile. It is a worldwide trend in developed economies, the upshot of which is the worsening of existing earnings inequality.
To increase economic efficiency and spur growth in Latin America, democratic and market-oriented countries including Chile, Mexico, Peru and Colombia established the Pacific Alliance in 2011 providing for the free movement of capital and labour among member countries. Although Chile’s growth under Bachelet lagged the rest of the region, investors still point to Chile’s advantages over its partners. Mexico’s gangster-driven crime gives it one of the world’s highest murder rates, and its recent election of the populist Andrés Manuel López Obrador has cast uncertainty over its future economic management. Colombia is now led by a government that is openly sceptical of the peace agreement with the once-revolutionary Fuerzas Armadas Revolucionarias de Colombia (FARC) and has still not settled with another revolutionary group, the Ejército de Liberación Nacional (ELN). Peru’s political class has been damaged by its association with the bribery scandal surrounding Brazil’s Odebrecht business conglomerate. The current president, Martín Vizcarra, is hampered by the congressional Fujimoristas, members of the populist authoritarian party created by ex-president Alberto Fujimori, who was convicted for crimes in office and remains in jail.
The challenges of Chile’s Pacific Alliance partners are exceeded by those of Chile’s larger neighbours. Argentine President Mauricio Macri’s market-oriented reforms have begun to run up against his country’s chronic indebtedness and limits to Argentinians’ patience for fiscal austerity. Brazil has been deeply torn by the cancerous corruption that has afflicted much of its political class. With the election of Jair Bolsonaro, it has cast its lot with a return to authoritarianism. Other external problems have induced a recent wave of immigration from Haiti and Venezuela, which carries the mixed blessing of increasing Chile’s labour force but also complicating social integration. Overall, Chile’s status as a peaceful, well-ordered and stable democracy committed to a market economy supported by social welfare and reform stands out in Latin America.
Moderating a difficult dialogue
Chile’s international brand has never escaped the negative aura associated with the military coup of September 11, 1973, and Augusto Pinochet’s subsequent murderous dictatorship. It appears that no news story about Chile can capture headlines in North America or Europe without a necessary reference to that period, which ended 28 years ago. For instance, this headline in Telesur on May 27, 2017: “Over 2 million people protest Chile’s Pinochet-era’s pension system.” It is not wrong to underline how Chile is still in some respects under the “shadow of the dictator,” to borrow the title of the 2008 book written by Bachelet’s exceptionally capable foreign minister Heraldo Muñoz. Hardly a day goes by in Chile without a pointed reminder of that era. One day a crowd may gather outside offices in Chile’s modern business district protesting that the company president was implicated in the torture and disappearance of political prisoners but has not faced justice. Elsewhere the families of imprisoned generals protest that their fathers or uncles have done enough time behind bars and should be allowed to live their final, infirm days in the family home.
What is perhaps misunderstood is the manner in which Chile has managed this legacy within a mostly open and frank dialogue that represents reconciliation in action – imperfect as it inevitably will be. Like all democratic presidents before him, Piñera carries the burden of playing the role of moderator of this dialogue. In this role, he does not carry Bachelet’s credentials. She was a leftist militant supportive of Salvador Allende’s government whose father, a pro-Allende military officer in an executive role, died after torture. Bachelet, after herself being detained, went into exile but returned during the dictatorship to serve as a doctor, administering often to regime victims, and work secretly with the underground resistance. Piñera, on the other hand, founded his business empire after the coup on the castoffs of Allende’s nationalized businesses. However, unlike many of his associates, he does have the redeeming attribute of having supported the No side in the vote against the prolongation of the dictatorship, which led to the negotiations to reestablish democracy.
As much as the torture and murder of the Pinochet regime are condemned by the vast majority of Chileans, they are still divided on the responsibility of Allende and his supporters in provoking the military reaction. Roberto Ampuero, who is now Piñera’s foreign minister, was a communist militant during the Allende regime and fled into exile first in Cuba and then East Germany after the coup. In 2015, along with another Allende-era militant, Mauricio Rojas, Ampuero published a book called Diálogo de conversos (A converts’ dialogue), in which they castigated their own and their compatriots’ rash calls for a violent overthrow of Chile’s wealthy classes.
In the book, Ampuero describes demonstrations in which he and others sporting helmets marched through residential neighbourhoods chanting “Momios up against the wall; their women to the mattress” (momios, or mummies, is Chilean slang for right-wing conservatives):
There were people frightened to death to see thousands of guys with flags, canes and nooses, shouting “Expropriate, expropriate. It’s the popular will.” … This was us as a country before the coup and because of this, what happened later, happened. And I say this without condoning a single violation of human rights suffered under the dictatorship. But we have to be honest till it hurts: we wanted to frighten the momios and the soldiers, and later we became aware that fear, resentment and hatred were accumulating on the other side. It’s clear today, many, on one side or the other, avoid responsibility; they prefer to assume the role of victims, and they prefer to paint the division and the polarization as though they fell from the skies the night after September 11.
In appointing Ampuero foreign minister, Piñera endorsed this perspective. He did backtrack slightly after appointing Rojas, and then accepting his resignation, as minister of culture.2 However, in his statement on the anniversary of September 11, Piñera effectively articulated the two writers’ point of view: “Our democracy was very ill; September 11 was not a sudden death.” The reaction of the left to Piñera’s statement was negative, its spokespersons pronouncing that they were not prepared to condone those who “relativize and justify” Pinochet’s regime. The debate will continue as long as there are living witnesses of that era, and undoubtedly even longer. But it is a free discussion and not suppressed.
On June 1, 2017, a bright autumn day in Valparaíso, then-President Bachelet gave her final presidential message to the Chilean Congress, her last opportunity to defend her government’s record before the November elections. By then it was clear that her would-be successor, Alejandro Guiller, would fail in his bid for the presidency. Nevertheless, she proclaimed, “Governments will change, but history driven by the force of an entire country cannot be held back.”
She was not wrong. The centre-left’s presidential candidate was repudiated, but the congressional leftist majority requires Piñera to be flexible. He seems to have taken on the challenge: while rebooting the economy, he seeks to satisfy the majority’s desire for more social equality.
1 The binomial system in dual-member constituencies assured the election of a candidate from the second-place coalition unless the leading candidate of the first-place coalition was able to double that candidate’s ballots.
2 Rojas criticized Chile’s Museo de Memoria, dedicated to the victims of the dictatorship, as a “setup” (montaje) for entirely ignoring political events that preceded the coup. Piñera withdrew Rojas’s appointment on the grounds that the museum was part of the culture ministry’s dossier.