Chile Politics November 2017

Chile

Chile: Sebastian Piñera remains strong favorite to become Chile's next president

November 6, 2017

Less than two weeks before the first round of presidential elections, Sebastian Piñera enjoys a commanding lead in the polls. A victory for the center-right former president, who is seen as pro-business, would likely lead to a greater government focus on boosting competitiveness and investment.

The plan presented by Piñera in late October is a clear sign of this focus. It sets out a battery of 30 measures as part of a Productivity Agenda (Agenda de Reimpulso Productivo) designed to reduce barriers to entry, foster entrepreneurship and promote competition. Piñera’s Productivity Agenda would be managed by a new Office for Competitiveness, Investment and Productivity, which would also be tasked with cutting red tape. The plan aims to speed up the approval of significant investment projects; the slow project evaluation process is a common complaint of firms. In addition, Piñera is also proposing to forge ahead with a Chile Invest 2025 Program, which would consist of investment in the country’s physical and digital infrastructure in order to narrow the substantial infrastructure gap with other OECD countries.

The plan includes proposed amendments to key planks of current President Bachelet’s reform program, without completely dismantling her legacy. For instance, Piñera is pledging to simplify the controversial tax reform that was approved in 2014 and criticized for its negative impact on investment. He also plans to progressively reduce the corporation tax to the OECD average, while leaving the overall tax burden unchanged. On education, another key area of Bachelet’s tenure, Piñera proposes halting the move towards abolishing tuition fees for all university students, and the reintroduction of some selectivity in schools.

The manifesto has a total cost of USD 14 billion, to be financed by fiscal austerity measures and the “reassignment of funds from poorly evaluated programs”. On fiscal matters, the tone is not particularly hawkish, although Piñera has pledged to move gradually towards a structural balance over the next six to eight years and to reevaluate the country’s Fiscal Rule. As a result, the public debt-to-GDP ratio would likely keep rising under his watch, as FocusEconomics panelists are currently forecasting.

Opinion polls currently point to a clear victory for Piñera in the first round on 19 November, and a comfortable win in the likely second-round run-off in December. However, because of the new electoral law, Piñera’s Chile Vamos coalition is unlikely to have an absolute majority in Congress. This will necessitate consensus-building with other parliamentary groups, in particular the center-left Nueva Mayoria and Christian Democrats.

According to Alejandro Fernández Beroš, Chief Economist at Gemines: “I think that the most likely result is that Piñera does not get a majority in parliament. This is a fact in the case of the Senate and very likely in the case of the Chamber of Deputies. This was what happened in the first government of Piñera, so it should not be considered as too negative. The possibility of negotiating with other parties is always present and, probably, now more than ever, considering that the Christian Democracy has a list separated from the rest of the government coalition that backs Bachelet and the opposition will be more divided. All in all, it's not going to be easy to govern for Piñera.”

Trailing Piñera in the polls are Alejandro Guillier and Beatriz Sánchez, representing the center-left Nueva Mayoria and left-wing Frente Amplio, respectively. Guillier is widely regarded as offering continuity with Bachelet’s policies. Some of his proposed policies include greater regional decentralization, broader access to free higher education and a reformed system of loan repayments.

Beatriz Sanchez offers a much more radical set of proposals, which would mark a clear break with the largely centrist, market-friendly policies pursued since the restoration of democracy in 1990. In a plan that would cost USD 13.4 billion a year, she is proposing to triple spending on science, innovation and technology, and establish universal health insurance. Extra spending commitments would be financed by higher taxes on the wealthy—through the introduction of a wealth tax, capital gains tax and an additional top income tax band—and a 5% mining levy.

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 2.8% in 2018 and 3.0% in 2019.


Author:, Economist

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