CHILE, ECONOMY / See Chile.

1998-2018 OVERVIEW

‘October 5th 1988 was a good day for Chile. In a plebiscite voters rejected a proposal by Augusto Pinochet, who had taken power 15 years before, to extend his dictatorial rule. That led to free elections a year later and to more than two decades of strong economic growth, underpinned by pro-market policies, social reforms and, from the early 2000s, a commodity boom. The economy trebled in size and the poverty rate dropped from nearly 40% to less than 10%. Economists dubbed Chile “the tiger of Latin America”. Recent years have been less tigerish. The price of copper, the biggest export, began falling sharply in 2014. Michelle Bachelet, the president from 2014 to 2018, rewrote the tax code, strengthened labour unions and proposed a new constitution. Her aim was to reduce inequality, but she also unnerved business. Investment contracted for four consecutive years. Economic growth dropped from an average of 5% in the post-Pinochet years to 1.7% in 2013-17,’ (The Economist, 2018 Sept 29).

1990-2000 / ‘For two decades after the end of Augusto Pinochet’s dictatorship in 1990, Chile offered a successful model of an open, free-market economy and gradual social reform under centre-left governments. Chileans became less poor, and millions of people went to university for the first time. Mr Piñera continued this approach. The economy boomed on his watch. But faced with a powerful student movement angry over the cost of higher education, he struggled politically,’ (The Economist, 2018 March 10).

2010-2014 SEBASTIAN PINERA / ‘Sebastián Piñera, a billionaire businessman turned politician was a successful but unpopular president of the centre-right in 2010-14,’ (The Economist, 2018 March 10).

2014-2018 MICHELLE BACHELET / ‘Piñera’s ‘successor (and predecessor), Michelle Bachelet, swung to the left, adopting the students’ demands. When one of her allies promised to take a retroexcavadora (the graphic Spanish word for a backhoe loader) to Pinochet’s “neoliberal model” under which many public services are privately provided, she did not contradict him. Ms Bachelet pushed through reforms of tax, education and labour, all aimed at making society less unequal. To achieve this, she abandoned the consensual approach of her predecessors. However laudable her intentions, many of her reforms were polarising, technically flawed and unpopular. Business took fright. Investment has fallen for the past five years. The economy averaged growth of just 1.8% a year under Ms Bachelet, compared with 5.3% under Mr Piñera. Her people blame low copper prices; her critics blame her reforms. It was Mr Piñera’s economic record, and fear that Ms Bachelet’s candidate would tack even further left, that brought him victory,’ (The Economist, 2018 March 10).

2018 ‘The second presidency of Sebastián Piñera [from March 11th] in seemingly auspicious circumstances. Mr Piñera won a resounding victory in a run-off election in December, with 55% of the vote. Chile’s economy is growing at its fastest rate for two years and the price of copper, its main export, is rising. The 11-country Trans-Pacific Partnership, a trade deal from which Donald Trump opted out, is due to be signed in Santiago on March 8th. And a Chilean film has just won an Oscar. Yet the sunny appearance may deceive. Mr Piñera, who was a successful but unpopular president of the centre-right in 2010-14, must deal with the conflicting pressures of restoring rapid economic growth by boosting private investment while trying to meet the demands of a society undergoing far-reaching change. His main aim is to restore economic growth to 3.5-4% a year, the most the economy can now manage, says Felipe Larraín, who will be finance minister (as he was in 2010-14). A key measure will be improving Ms Bachelet’s hugely complicated tax reform and gradually cutting the corporate income-tax rate from 27%, among the highest in Latin America,’ (The Economist, 2018 March 10).

BIBLIOGRAPHY

The Economist, 2018 March 10, p47, ‘A bumpy road down south’, p47.

The Economist, 2018 Sept 29, p43. ‘Steering the economy away from the middle-income trap’, p43.