Piñera Returns

February 12, 2018

Investors could be forgiven for feeling a sense of déjà vu as Piñera replaces outgoing president Michele Bachelet for a second time. Voters certainly felt it, with the turnout of 46.7% a new low since the return of democracy in 1990. That voter apathy, plus the adoption of proportional representation, which meant that more parties divide the seats in Congress, could prove a challenge to Piñera when he assumes power in March. The billionaire politician is a divisive figure whose first term from 2010 to 2014 was marred by street protests.

The Chilean model

Even critics of the president-elect have to respect his economic record. During his last stint Chile’s economy grew at 5% per year, far higher than the annual average of 2% during Bachelet’s latest term. Of course, one reason was copper prices, which were high for Piñera and low for Bachelet. However, his luck seems to be in again as the price of the red metal has recovered.

his luck seems to be in again…

But the other reason was that Piñera stuck to the tried and tested Chilean model of encouraging private-sector investment with friendly tax policies and a consistent business environment. Indeed, in his campaign the centre-right former airline magnate proposed plausible measures to boost Chile’s growth. He wants to cut regulation for the struggling mining sector, reverse falling business investment by cutting corporate tax and tighten up Chile’s fiscal position.

Social consensus

Yet Piñera may find that harder to do this time. One problem with the ‘Chilean model’ is that economic growth comes with inequality. So, Chile can be proud that it’s one of only two Latin American countries with full membership of the OECD club of rich nations, but ashamed because it has the highest rate of inequality in the organisation. Bachelet’s attempts to tackle that were criticised as ineffective by the left and blamed by the right for unsettling the economy. But at least she tried. Piñera campaigned on a conciliatory platform yet the line-up of his cabinet suggests that he has little appetite for real reform. If he completely ignores the issue of inequality he’s likely to find his economic measures blocked in Congress or met with protests in the street. No one doubts Pinera’s ability to oversee economic growth. But this time around he will have to build a social consensus too.