If the once popular Socialist become President a second time, as polls predict, Chile may be in for some major changes. What will it mean for the so-called 'Chilean Model'?
SANTIAGO — It's strange, what's happening in Chile. The country is seen abroad as a model of Latin American political stability and sustained economic growth, while at home it lives out the social conflicts provoked by income disparities, political divisions, strikes and street riots.
Both visions of the country are correct, paradoxically. Chile's social, economic and political problems are very real. The education system favors the privileged and 30 years of steady economic growth have but dented the enormous breach dividing the rich and poor. These are the growing pains of a country that has done the right things in politics and the economy for 20 years now, succeeding in maintaining stability while raising per capita incomes from $5,000 to $20,000.
There will be no surprises in presidential elections on November 17 in Chile, where the head of state cannot serve consecutive terms. The victor will be the Socialist party pediatrician Michelle Bachelet, who was Chile's president from 2006 to 2010.
And indeed, her re-election could benefit the country.
If Bachelet receives more than half the votes, she will be the President-elect on Monday. If she does not reach 50%, she will win in a second round scheduled for December 15. This is the only element of suspense in these elections.
The former president has echoed in her campaign speeches the social demands that have fomented street protests and labor strikes, creating difficulties for the outgoing government of President Sebastián Piñera.
Over the last four years, secondary school and university students have taken to the streets demanding an education system that truly provides equal opportunities for all. Meanwhile important power plant projects announced by the government have been rejected by investors or the government itself after protests by environmental activists and community groups living near the localities where they were supposed to be built. There is a looming danger that Chile's power grid may not meet power demand by 2016.
Street protests by students have almost always ended in violence and vandalism against public and private property. Their demand for education that assures equal opportunities, especially legitimate in Chile's unequal, class-based society, morphed into demands for free university education for all including higher-income groups, which does not really promote equal opportunity for all.
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Student protests are a frequent site on the streets of Santiago (B1MBO)
Bachelet's discourse is more left-wing now than in 2006, and she has indicated that if elected her government would provide free university education for Chilean youths. But her program supposes only gradual change, meaning this could take six years to take effect. Her education program emphasizes, rightly, the need to improve education quality rather than financing it with massive subsidies.
The Socialist candidate hopes to finance her program with tax reforms that would increase taxes on company profits from 20% to 25%, and remove a mechanism that allows firms to defer tax payment on profits not yet distributed.
Parties backing President Piñera's government have said such measures will deter investors and harm job creation. But the truth is that Chile's current corporate tax rates are far below the Latin America average of 28%, and below the average 25% rate of the Organization for Economic Cooperation and Development (OECD), the grouping of rich countries to which Chile adhered during the first Bachelet presidency. The great majority of Chilean employers know that company taxes are very low and that a 5% rise is a low price to pay if greater tax returns finance social programs that will reduce inequality in the country and allow children of poorer families to receive a good education.
The current education model in Chile is strongly segregated and discriminatory, condemning the children of the poor to remain in poverty. Improving education quality will also make Chile's economy more competitive, boosting future growth. Chile is Latin America's most competitive country according to a World Economic Forum index, ranking 34th worldwide. The quality of its education claims only the 74th position.
A brand new Constitution?
The former president has also denounced Chile's system of private pensions management in her speeches. Created 30 years ago during the rule of General Augusto Pinochet, the private firms known as AFPs or Pension Fund Administrators were long seen as models to emulate elsewhere in the world. They needed no state subsidies, ensured pensions depended on workers' individual savings and gave depth to the local capital market.
But after three decades of activity the AFPs have betrayed their earlier promise of providing retirees with reasonable pensions, and have created high costs for administering the system. Furthermore returns from saving funds and the average contributions made for years have been less than expected. Clearly, the Chilean AFPs need a review.
The ex-president's other campaign theme is constitutional reform. The current constitution dates from the referendum Pinochet government called in 1980, and many question its legitimacy. Bachelet has not ruled out forming a constituent assembly to draft and submit to popular approval an entirely new constitution – which would be a mistake – but her program emphasizes seeking consensus solutions to prevent such extremes.
There is already consensus among practically all political sectors on the need to reform this Constitution. It includes an electoral system that has impeded the rise of new political forces in Chile, denying parliamentary representation to minorities disinclined to join one of the majority coalitions that dominate the country's politics. Bachelet will take the lead in reforming this duopoly political system, and it was time somebody did.
The Socialist candidate has a golden opportunity to undertake reforms the country needs. But she must overcome several challenges, beginning with the great expectations her campaign has created. Any reforms she undertakes will need time to yield results, which is why it will not be easy to contain and placate the anxiety of the majority of her voters.
On the other hand, the coalition taking her to the presidency this time includes parties and postures that wish to undo the Chilean economic model. She will need the same talent she displayed in managing to win the support of a wide range of postures and parties, to forge consensus among an even wider group of people when she becomes president a second time. She is in a good position to do so. With strong leadership she will be able to implement reforms Chile urgently needs, without endangering what the country has achieved over the past 30 years.