Chile Politics


Chile: Bachelet reshuffles cabinet to promote reforms and regain support

May 14, 2015

In a surprise announcement on 6 May, President Michelle Bachelet asked all her ministers to resign and said that she would decide in the following days who would leave and who would stay. Bachelet named the new cabinet on 11 May, which included a change in nine government officials; she appointed five new members and moved four members from the former cabinet to new positions. Replacing Finance Minister Alberto Arenas with Rodrigo Valdés is seen as the most significant change. With the reshuffle, Bachelet aims to regain support for her ambitious reform agenda and to recover from a series of corruption scandals that have weakened confidence in the government. Bachelet’s popularity has been falling since she started her second term as president in March 2014. An April poll showed that her approval rating was broadly 30%, which is only a small fraction of the widespread support she had when she completed her first term in 2010. Bachelet’s popularity also suffered from the fact that Chile’s economic growth has slowed under her administration. Lower copper prices—the country’s main export—were a drag on growth and political uncertainty held back investment last year.

In the view of many analysts, the cabinet shuffling does not suggest that there will be a substantial change in economic policy and instead appears to be mainly aimed at promoting the government’s reform agenda. The changes shifted the balance of power in the center-left-coalition more to the center, a signal that Bachelet is trying to create a more moderate and market-friendly image after previous reforms generated concerns from the private sector. The appointment of Rodrigo Valdés, former CEO at Banco de Estado, as Finance Minister is seen as a relevant change toward a more business-friendly environment.

Iker Cabiedes, Economist at JPMorgan, commented:

“We highlight the replacement of the Ministry of Finance, Alberto Arenas, by Rodrigo Valdés as the most relevant change. Historically, this is a position that hasn’t been replaced since 1990, when Chile returned to democracy. Minister Arenas was a close electoral collaborator during Bachelet’s campaign and was the mastermind and political executer of last year’s fiscal reform. Moreover, while Mr. Arenas has an affiliation with the Socialist Party (PS) and a professional background mostly in the political arena and public sector, Mr. Valdés is identified with the Party for Democracy (PPD) and his background involves also the private sector, which suggests President Bachelet is willing to embrace change from an ideological standpoint. In our view, there was effectively a divorce between former Minister Arenas and the private sector. Hence, this change should provide the opportunity to rebuild the dialogue between the Ministry and the private sector with a fresh start, which should be welcome by market participants.”

FocusEconomics Consensus Forecast panelists see GDP expanding 2.9% in 2015, which is unchanged from last month’s projection. For 2016, they expect GDP growth of 3.6%.

Author: Teresa Kersting, Economist

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