A land of geographical and political extremes, Chile seems to have rejected moderation as the nation elevated a former student protest leader to the presidency. However, the electorate did so reluctantly. It faced an almost impossible choice between a right-wing apologist for authoritarian rule and a left-wing radical.

Leading the ‘Approve Dignity’ coalition-of-coalitions that includes a colourful array of fringe movements ranging from libertarians and humanists to communists and greens, the 35-year-old Gabriel Boric secured almost 56% of the vote in Sunday’s runoff election.

Mr Boric owes his triumph to his blustering opponent José Antonio Kast (55) whose populist message included a promise to dig a trench along the country’s northern border with Peru and Bolivia in a ‘last-ditch’ attempt to stop illegal immigration.

Promising a ‘return’ to law and order and a safeguarding of Chile’s free market policies, Mr Kast also appealed to social conservatives with his opposition to abortion, same-sex marriage, and ‘feminism’ in general. More importantly, Mr Kast’s effusive praise of late-dictator Augusto Pinochet, who kept the country in his iron grip between 1973 and 1990, turned away many voters otherwise sympathetic to the candidate’s business-friendly policy proposals.

President-elect Boric did tone down some of his more radical proposals to ensnare the social democrat constituency which lost its home after the demise of the ‘Concertación’ – the centre-left coalition of democratic parties which governed the country successfully for twenty years after the reestablishment of democratic rule.

Mood Swings

Plagued throughout much of its contemporary history by wild political mood swings that touched both ideological extremes, Chile became a beacon of stability in the region until a small hike in subway fares sparked widespread protests in early October 2019 – at one point rallying an estimated 1.2 million people in downtown Santiago. It was the proverbial straw that broke the camel’s back: the $0.04 increase of the ticket price unleashed years of discontent brewing just below the surface.

Billionaire president Sebastián Piñera initially stoked the fires with his fierce law and order rhetoric, threatening to invoke National Security Law with ten-year prison sentences for those found guilty of causing public disturbances. Apparently tone deaf and grossly underestimating the deep-seated anger at poor public services and growing inequality, President Piñera proved singularly inept at containing the social outburst as it quickly spread to provincial capitals. Churches, government buildings, and shops were looted and torched in a wholesale explosion of anarchy.

Assorted pundits argue that the election of a more leftist president will calm the waters and move Chile closer to the ideal of a modern social democratic welfare state. Investors are not so sure and have withdrawn close to $50 billion from the country over the past few months. Mr Boric’s most controversial – and also potentially most harmful – proposal concerns the scrapping of the country’s private pension funds and their replacement with a government-backed scheme.

Opponents accuse the president-elect of preying on the estimated $140 billion stashed away in the privately-held and -managed funds which provide a wealth of liquidity to Chilean capital markets. The thorough reform of the pension system in late 1980 is credited with signalling the start of Chile’s remarkable economic growth trajectory – just short of a ‘miracle’ – which propelled the country from a troubled backwater to the top spot in Latin America.

Consensus and Pragmatism

However, talk of Chile backsliding and joining the ranks of quasi-failed states such as Venezuela and Nicaragua ignore the country’s sophistication in law, institutions, and politics. Only hours after the polls closed, Mr Kast conceded victory, and President Piñera congratulated the winner.

Mr Boric immediately promised to seek consensus and work with the opposition to implement a ‘modern’ agenda. President-elect Boric is widely expected to follow the example set by fellow leftists in the region such as Brazil’s Luiz Inácio da Silva (‘Lula’) and Peru’s Ollanta Humala who turned to pragmatism and realism upon gaining power, losing the sharper edges of their ideological discourse in the process.

On the other side are the less fortunate examples of more committed ideologues such as Nicolás Maduro of Venezuela and Cristina Fernández de Kirchner of Argentina who both presided over prolonged recessions and, essentially, bankrupted their countries. As he tries to balance administrative competence, radicalism, and pragmatism, Mr Boric enjoys some wiggle room. His promise to raise taxes on corporates and the well-off are not altogether unreasonable considering the state’s moderate tax take (19.3% of GDP) and the lopsided social stratification which grants 1% of the population control 26.5% of the country’s wealth whilst the bottom half of the social pyramid has access to just 2.1%.

Within the OECD, Chile’s poor Gini coefficient is only exceeded by South Africa and Brazil, a telling testament, in the eyes of Mr Boric, to the bankruptcy of the neoliberal model which, he claims, has consistently failed to deliver social inclusion.

Continuity

After a meeting with outgoing president Piñera at the La Moneda Palace on Monday afternoon, Mr Boric emphasised the importance of policy continuity and promised to fill his cabinet with independents. He also scaled back planned tax hikes for corporates and wealthy individuals.

The incoming administration will need to deal with the unwinding of Chile’s substantial pandemic emergency support programs – and any of the resulting withdrawal symptoms. The budget proposal currently winding its way through congress seeks to reduce the deficit from 4.2% to 2.8% of GDP. In real terms, government spending is set to be slashed by 22.5% as pandemic measures end. Cash transfers to businesses and families, estimated at $34 billion (11.1% of GDP) for the current fiscal year, are being scrapped altogether.

Chile’s covid-19 response was by far the most robust in Latin America. The government spent more than 14% of GDP on emergency measures, compared to 8.7% in Brazil and a paltry 0.6% in Mexico.

Though government debt has ballooned to 37.3% of GDP, Chile had no trouble raising funds thanks to the country’s solidly investment-grade sovereign bond rating (A- outlook stable). Mr Boric will inherit a booming economy expected to grow more than 11% this year as Chileans splurge their pandemic windfall – including the $49 billion in early withdrawals from pension funds allowed under emergency legislation – on consumer goods.

Less eye-catching, perhaps, than the presidential election, on January 4 delegates to the Constitutional Convention are set to elect a new (rotating) president. The assembly is currently headed by Elisa Loncón, an academic and indigenous activist under whose polarising leadership the body has become mired in discussions on identity and diversity with radical factions apparently firmly in charge of writing the country’s new constitution.

As is (depressingly) common throughout Latin America, the Chilean draft constitution is turning into a vast depository of desires and aspirations – all painstakingly described – as opposed to a collection of generic national principles. A welfare state is not legislated into being. However, president-elect Boric has promised to support and collaborate with the convention and promised to implement its decisions.

Meanwhile, markets are mostly keeping their cool with the peso initially retreating 4% against the dollar and Santiago’s IGPA index dropping 6.2% on Monday before advancing to pre-election heights towards the end of the week after soothing noises from the Boric camp. Investors took heart from the fact that the incoming administration will have to show considerable restraint if its proposals are to clear the senate where its supporting coalition controls only five out of fifty seats.

On second thought, Mr Boric’s landslide victory may amount to little more than ‘a small earthquake in Chile’.

Cover photo: A scene from the 1927 film Metropolis, a dystopian masterpiece by German director Fritz Lang.

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© 2022 Photo President Gabriel Boric by Ministerio de las Culturas, las Artes y el Patrimonio