Chile Watchers Are Waiting for Boric’s Pick of Finance Minister

(Bloomberg) -- Now that he’s won the election, Chile President-elect Gabriel Boric will turn his attention to forming a cabinet that tries to satisfy allies and voters while not further alienating nervous investors who’ve been dumping assets.

The economic scenario faced by the most left-wing president in Chile since Salvador Allende in the early 70s is far from simple. The country’s central bank forecasts that growth next year will come to a halt, plunging from near 12% this year to as low as 1.5%, as the pandemic stimulus is withdrawn. The next government needs to address a fiscal deficit that has swelled to almost 12% of gross domestic product. 

Financing costs will be high, as inflation will average 5.9% next year and the central bank will keep increasing borrowing costs. Interest rate swaps are showing that the key monetary policy rate will reach 7% in six months.

Investors will seek clues in Boric’s pick for finance minister in trying to determine whether he will stick to his campaign promise of macroeconomic stability or if the country is entering a period of heavy government expenditure.

Here are his main candidates:

Andrea Repetto

If calming the markets is his goal, Boric may choose Andrea Repetto, 52, a well-regarded economist and professor with a doctorate from the Massachusetts Institute of Technology.

Relatively new to Boric’s circle of advisers, she joined his campaign after the first round when he reached out to Chile’s center-left parties to broaden his coalition. She has spoken about the need for prudence, given the divisions in congress. 

“There is no alternative but to review what was promised and think carefully what’s doable in this new scenario,” she wrote in an op-ed in El Mercurio newspaper.

Repetto served on government-appointed panels looking at pension reform and corruption reduction during the second government of Michelle Bachelet a decade ago and was chosen by her peers as Chile’s economist of the year in 2018.

“Repetto is a well-known academic with clear public policies, and could call for more moderation in Boric’s program,” said Carolina Ratto, head of equity research at Credicorp Capital in Santiago.

She would be Chile’s first female finance minister. 

Local media have reported that Repetto isn’t interested in a top position. Boric’s campaign didn’t reply to a request for comment on her candidacy and others’.

Nicolas Grau

Nicolas Grau, 38, has been part of Boric’s inner circle and may be closest to him of all the candidates. He advised Boric on economic issues when he was preparing for the first televised debates for the July primaries.

He holds a doctorate in economics from the University of Pennsylvania. His recent research has focused on education, youth crime and gender discrimination. 

Grau has supported adding worker representatives at company boards, cutting the working week to 40 hours and raising minimum wage to 400,000 pesos ($465), according to Ex-Ante.cl. He has also quoted the works of economist Mariana Mazzucato in praising the role of the state and public funding in scientific innovation.

Claudia Sanhueza

Another confidant to Boric is Claudia Sanhueza, 47, who was mentioned before the November first round as a potential candidate to run the Finance Ministry. She has a Ph.D. in economics and a masters in philosophy both from Cambridge University.

Sanhueza caused controversy in October when she said Chileans would only keep what they had saved so far after a Boric administration eliminates the country’s private pension system. Future payments would go to a public social security system.

That proved to be unpopular in Chile, with 93% in favor of allowing savings to be inherited by survivors, according to pollster Criteria. Since then, the Boric campaign has backed down and said that future savings will remain as private property and relatives may inherit them, although paid as annuities and not as a lump sum. 

Other Candidates

Other names are former Central Bank President Roberto Zahler, 73, and former pensions and securities regulator Guillermo Larrain, 57, who also joined Boric’s team after the first round. Both have ties to the center-left coalition that ruled Chile after the dictatorship of Augusto Pinochet.

Boric’s economic advisory team also includes Universidad de Chile Professors Eduardo Engel, Diego Pardow and Ricardo Ffrench-Davis, as well as former Bachelet education adviser Javiera Martinez and executive director of think-tank Opes Chile Javiera Petersen. 

Boric may not want to give the post to someone who joined his camp so late and may prefer someone closer to his political party, such as Grau, according to Felipe Alarcon, economist at insurer Euroamerica. 

“This last batch of advisers aren’t his confidants and that is why I think he may insist on someone like Grau,” Alarcon said. “For the market, Grau is no guarantee. He may have all of the credentials but he doesn’t have experience.”

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