Latin America’s Poster Child Seeks a Third Way Out of Crisis
Latin America’s Poster Child Seeks a Third Way Out of Crisis
(Bloomberg) -- When Chile’s social unrest exploded last month, a saying started to do the rounds to express the significance of what was happening: “Neo-liberalism was born in Chile, and it will die in Chile.”
The process to create a new constitution announced Friday may go some way to assuaging the grievances that were aired on the streets of towns and cities the length of Chile. But if politicians are to have a prospect of securing a longer-term stability, they will need to address the inequality that lies at the heart of the troubles.
Whether neo-liberal, market-friendly or simply encouraging of business, the policies under which Chile has become South America’s wealthiest nation are now about to change, perhaps radically. What comes next will be closely watched to see whether it offers a new model for greater equality and economic growth at a time of widespread unrest across the region.
“This is a moment for Chile to chart out a new terrain,” said Jennifer Pribble, associate professor of political science at the University of Richmond in Virginia. “It’s a tall task, but this initial political response could lay the groundwork to renegotiate a new kind of development model that constitutes a third way in the Latin American context.”
Under Friday’s accord, Chile will hold a referendum in April to decide which body draws up the constitution. Whichever body is chosen will have nine months to write up the charter that will then be put back to voters.
The agreement is a major step toward solving a social crisis that has shaken the nation for the past month. What started as a protest against a 30-peso (4-cent) rise of subway fares on Oct. 18 quickly snowballed into the biggest social unrest Chile has seen since the end of Augusto Pinochet dictatorship in 1990.
All Change
Demonstrators want a complete overhaul of Chile’s free-market system designed by U.S.-trained economists -- the so-called Chicago Boys -- during the dictatorship. Demands encompass everything from education, pensions, health care, wages, utility bills and even road tolls.
The constitutional process “will go a long way to calm the social unrest, but it is not enough,” said Claudio Fuentes, a political scientist and professor at Universidad Diego Portales in Santiago. The agreement “opens the door to advance in other issues.”
President Sebastian Pinera’s center-right administration has started the process.
Last week, newly-appointed Finance Minister Ignacio Briones presented a bill to reform the tax system, saying it was targeting the wealth of the “super-rich.” Just two years earlier, Pinera had won election on pledges to cut taxes for the rich and boost economic growth. Those promises are now a distant memory.
Social Agenda
The government has also unveiled a $1.2 billion social agenda that includes a 20% increase to the minimum pension, a new minimum income set at 350,000 pesos (about $450), a reformed funding model for the public health-care system and a freeze of utility prices. Some members of Congress are pushing for a 50% pension increase.
But the government has a mountain to climb over inequality after 40 years of unfettered free market growth. Chile is the most unequal member of the 36-member Organization for Economic Cooperation and Development.
While Chile may be the wealthiest nation in South America, the average monthly income is 574,000 pesos ($738), according to the National Statistics Agency. The median income, the midpoint of all salaries, is 400,000 pesos.
Debts often dwarf people’s wages, with 4.6 million Chileans, a quarter of the population, late on payments, according to a study by Universidad San Sebastian earlier this year. The average overdue debt is 1.75 million pesos, and could explain why a government bill allowing debtors to delay payments has been called inadequate by many.
‘True Redistribution’
“Pinera is pushing for meager bonuses for the most vulnerable individuals,” said Diego Ibanez, a congressman with left-wing coalition of parties Frente Amplio. “We demand true redistribution of wealth, with taxes for the super-rich to fund universal social rights.”
The transition from free-market poster child to a new caring, welfare state won’t be easy, particularly for Chile’s president -- a member of the super-rich himself.
The billionaire businessman-turned-politician is now Chile’s most unpopular president since the return to the democracy, according to pollster Cadem. He exhausted much of his political capital at the start of the demonstrations when he declared “war” on the protesters and called on Chileans to choose sides. A man died of cardiac arrest Friday during protests in Santiago, CNN Chile reported.
Pinera backtracked within days and apologized, but it is hard for many Chileans to accept his new caring, compassionate note. No march goes by without calls for his resignation.
“Pinera has mismanaged this crisis from the very beginning,” Pribble said. “Him taking distance now could help boost the legitimacy of the accord in the eyes of the protesters.”
Chile’s politicians now have months and years of hard work ahead of them to overhaul the system and placate protesters, without destroying growth.
On the streets, Santiago is already a different city. Daily commutes have become a nightmare after dozens of metro stations and buses were burned and vandalized. Walls are covered in graffiti with protest slogans, and shops and banks are shielded behind thick metal and wooden panels to avoid looting.
As of Friday evening, the panels remained in place. The transformation is only just beginning.
--With assistance from Patrick Gillespie.
To contact the reporter on this story: Laura Millan Lombrana in Santiago at lmillan4@bloomberg.net
To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, Tony Czuczka
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