Chile Politics January 2018

Chile

Chile: Piñera sweeps to victory in second-round runoff

January 10, 2018

Victory for center-right candidate and former president Sebastian Piñera in the second-round runoff of the presidential elections, held on 17 December, is likely to be good news for business, with the stock market rising significantly on news of the win. His presidency should lead to a greater focus on boosting competitiveness, investment, and economic growth. However, Piñera’s Chile Vamos coalition lacks a majority in both houses of parliament, which could limit the scope and speed of reforms.

Piñera’s presidential program—presented in late October—set out a productivity agenda (Agenda de Reimpulso Productivo), with measures aimed at boosting competition and entrepreneurship. In addition, the program spoke of creating an Office for Competitiveness, Investment and Productivity, which would be charged with reducing red tape, and of streamlining the lengthy environmental approval process for large investment projects. One of the incoming government’s key priorities will be to simplify outgoing President Michelle Bachelet’s tax reform. Piñera also aims to reduce the corporate tax rate to the OECD average. On the fiscal front, his program talks of attempting to balance the structural budget gradually over the next six to eight years to slow the rise in the debt to GDP ratio, although government spending is still likely to continue rising at a fair pace under his leadership.

However, Piñera is likely to find it hard to get policies through parliament when he takes office on 11 March, as his Chile Vamos coalition does not have a legislative majority. Gaining the support of more left-leaning opposition groups will be key—particularly the center-left Fuerza de la Mayoria and centrist Christian Democrats. In an acceptance speech soon after the second round, runner-up Alejandro Guillier—the presidential candidate for the Fuerza de la Mayoria—signaled his willingness to work with Piñera and form a “constructive” opposition. However, the Christian Democrats are currently embroiled in internal difficulties, which could make it tricky for the party to reach policy agreements.

Piñera will likely have to moderate some proposals and place greater focus on social equality and redistributive policies to garner political support. This move to the political centerground was evident during the campaign, when the president-elect promised to continue Bachelet’s policy of expanding free access to higher education. Since the election, he has met with ex-presidents and key ministers from the outgoing government to show his openness to dialogue with the opposition. Piñera also has experience of running a government without holding a parliamentary majority. This was the case during his first term as president from 2010–2014.

The economic gods appear to be smiling on Sebastian Piñera, who will inherit an economy moving up through the gears. GDP growth is picking up again following a lull early last year, thanks to solid private consumption and greater copper exports. The Central Bank sees GDP expanding between 2.5% and 3.5% in 2018. Panelists participating in the LatinFocus Consensus Forecast see the economy growing 2.9% in 2018 and 2019.


Author:, Economist

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