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President Sebastián Piñera at an event March 11, 2018. His lack of a majority in Congress and strong pressure for more spending will force him to somewhat modify his plans for reducing taxes. (Photo: Chile President's Office)
Wednesday, March 14, 2018

Piñera: Positive Impact on Chile FDI

President Piñera will have a positive impact on FDI and economic expectations.

Inter-American Dialogue

Sebastián Piñera, who served as Chile’s president from 2010-2014, returns to the country’s highest office on Sunday, succeeding Michelle Bachelet for the second time. What will be the top items on Piñera’s agenda, and how will his second presidency be different from his first? What clues about his upcoming term can be gleaned from his expected cabinet selections? To what extent will his government take advantage of the country’s favorable economic environment in order to address low productivity and high inequality, as the Organization for Economic Co-operation and Development urged last month?

Guillermo Holzmann, professor at the University of Valparaíso in Chile and CEO of Analytyka Consulting: Piñera can be the model for promoting a beneficial deepening of the process of globalization led by China and in tune with the OECD and IMF. He appears to have the capacity and political ability to be a credible and indispensable actor in the area of trade agreements aimed at increasing investment and productivity, deepening trade relations with Asia and Europe, and reducing inequality. Chile’s democracy appears strong as compared to the lurching of Brazil, Argentina, Bolivia, Colombia, Venezuela and Mexico. The country’s challenges are economic ones relating to greater growth, investment, quality of employment and tax improvements. Challenges also include social issues such as inclusion, guarantees of social rights and an increase in freedoms related to education, health, pensions and work—including for migrants and sectors that are discriminated against. With regard to security, challenges that stand out include violence in indigenous communities. Institutional challenges include corruption and transparency. Chile’s problems lie in its ability to generate cross-cutting agreements upon a base of governance that includes all state, private-sector and social actors. It is important to make public policies visible and efficient with both continuity and change. The fragmentation of political parties in Congress will make it difficult to push for deeper changes and adequately manage the agenda inherited from Bachelet. Social mobilizations will be combined with unmet demands and radical positions and polarization related to the political and economic systems. Electoral support obtained, as well as the economic and political environments on the global and regional levels are in Piñera’s favor. His experience from his first term will be tested in the first six months to define his second term.

Patricio Navia, clinical professor of liberal studies at New York University: In his second government, Sebastián Piñera will face fewer challenges than in his first administration (2010-2014). Yet, there will also be more expectations as to what he can accomplish. Working in his favor will be the fact that people will compare his administration to his first term, not to Pinochet’s long dictatorship (1973-1990). In 2010, Piñera became the first right-wing president since Pinochet. Today, he will not have to deal with Pinochet’s shadow. Piñera also won’t have to deal with the shadow of a popular former president as he did in 2010. Michelle Bachelet, who was president before and after. Bachelet is leaving office with a 35 percent approval rating, much lower than the 80 percent approval rating she had in 2010. The left-wing opposition is now fragmented and weaker. There will be a radical wing in the streets trying to block Piñera, but he will have room to bargain with the moderate opposition in order to pass his reforms. Finally, there is no devastating earthquake to deal with now as there was in 2010, when he assumed power just days after the big Feb. 27 quake. Yet, the expectations are also higher now. Piñera has promised to restore vibrant growth after four years of mediocre growth under Bachelet. Piñera will inherit a complicated fiscal situation, with growing public spending and stagnant public-sector revenues. Bachelet left some unfunded mandates, including free university education for 60 percent of students. Since that mandate is popular, Piñera will be hard pressed to balance fiscal responsibility and high expectations. Still, because he is putting up a big sign that says Chile is open for business again, his arrival will have a positive impact on FDI and economic expectations. There will be problems, but Piñera is surely thinking that his challenge today is far less complex than when he first became president in 2010.

Maria Luisa Puig, senior analyst for Latin America at the Eurasia Group: President-elect Sebastián Piñera’s big win in December’s runoff against center-left Senator Alejandro Guillier undermined the ability of Michelle Bachelet’s administration to pass controversial legislation before the handover on Sunday. It also boosts the incoming president’s political capital to negotiate policy changes with other parties in Congress after taking office. Still, his lack of a majority in Congress and strong pressure for more spending will force Piñera to somewhat modify his plans for reducing taxes to boost investment and improving the pension system, two areas that will likely be a priority during his administration. As for his team, Piñera has chosen experienced figures in his cabinet in an effort to avoid the slow start that characterized his first administration and better negotiate with opposition groups in Congress. His main challenge will probably come again on the social front, considering that pressure for more spending in areas such as education and pensions remains strong.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor


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