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reflections

Nov 19, 2013 | 00:56 GMT

Chile: The Staying Power of Moderation

(Stratfor)
It can be difficult to separate the important from unimportant on any given day. Reflections mean to do exactly that — by thinking about what happened today, we can consider what might happen tomorrow.

Chile went to the polls Sunday to elect a new president following weeks of speculation that a decisive victory by former president and current candidate Michelle Bachelet would push Chilean politics to the far left. The consequences for such a development would be enormous, considering Chile is the world's largest copper producer and the most prosperous country in South America. If Bachelet and her coalition emerge victorious after the second round, it is true that they would have the political power to more easily pass socially progressive legislation, but they will still be constrained from taking the sort of actions that would put Chile on a populist path similar to that of Venezuela, Bolivia, Ecuador and Argentina.

What is a Geopolitical Diary? George Friedman explains.

The outcome of the first round of elections was mixed. Bachelet came in first place but failed to win the absolute majority needed to avoid a runoff in December. Her center-left coalition managed to secure control over both houses of the National Congress but fell short of gaining the numbers needed to unilaterally amend Chile's Constitution.

In the past, popular leftist politicians — Hugo Chavez, Rafael Correa, Evo Morales and Cristina Fernandez de Kirchner and her late husband and predecessor — used their popularity to increase their political power at the expense of existing institutions. However, politically, economically and socially, Chile is fundamentally different from its neighbors that have succumbed to populism.

Politically, the Chilean political system structurally favors cooperation and coalitions. While the center-left New Majority coalition now controls both houses of the National Congress, the coalition is composed of several lesser parties, all of which have different political persuasions. Bachelet's Socialist Party won only six seats in the 38-seat Senate and 15 seats in the 120-seat Chamber of Deputies. So enacting even the most basic legislation will require the cooperation of the more centrist Christian Democrats and Party for Democracy.

The country also has a unique political system known as the binomial system, which guarantees equal representation between the left and right unless one bloc wins by a factor of two. This has hitherto ensured stability at the expense of truly representative outcomes. If Bachelet wishes to follow through with her campaign promises to enact electoral reform, she will not only need to gain the support of the entire New Majority coalition but also court members of the opposition.

Economically, Chile has an institutionalized monetary and fiscal policy, which means that politicians are limited in their ability to tamper with macroeconomic fundamentals. Of particular note is the countercyclical fiscal rule, which essentially dictates that politicians are required by law to save copper proceeds in sovereign wealth funds during booms but are allowed to use deficit spending during downturns. This mechanism has support from across the political spectrum and has prevented politicians from using natural resource wealth for their own political purposes, as Chavez did with Venezuela's oil wealth. In Bachelet's previous term, she upheld this fiscal rule despite its unpopularity, and there is little reason to suggest she would consider abrogating it if elected again.

While social unrest has been noteworthy over the past decade, with student groups taking to the streets en masse on numerous occasions, these and other dissatisfied groups do not necessarily represent the will of the majority of the nation. Chile has experienced relative prosperity over the past decade and most of the population isn't willing to tamper with the fundamentals that led to that growth.

With a majority in both houses, but with neither the circumstances nor the mandate to pursue populist policies, Bachelet will likely be limited to enacting socially progressive policies aimed at reducing Chile's inequality while leaving the overarching liberalized economic model intact. She has proposed implementing a tax reform that would increase corporate income tax from 20 to 25 percent and generate 3 percent of gross domestic product in tax revenues. She has promised to disburse most of these proceeds on social initiatives, such as education reform and other redistributive programs.

Bachelet may well try to amend the binomial system, allowing for more representative political outcomes. But without the three-fifths majority in the National Congress needed to amend this provision, she would need to partner with the opposition. While conservative parties have refused to compromise on this issue in the past, they have tempered their position in recent years — it is now not out of the question. Bachelet has put together a committee to examine the possibility of calling a constituent assembly to rewrite the constitution in its entirety, but she is unlikely to do so. Unlike Chavez's revision of the Venezuelan Constitution in 1999, Bachelet has said that she is interested in amending the constitution within the current institutional system. Only 8 percent of the population indicated it would be in favor of calling a constituent assembly in Sunday's election, and the measure does not elicit the same widespread support as it did in Venezuela in the late 1990s.

Chile is at the end of an era with generational dynamics driving policy changes. But while this new era will be more socio-economically oriented and leftist in nature, it will not disturb Chile's hard-won stability, continuity and predictability. With strong political and economic institutions that have a nearly unblemished record since the transition to democracy, Chile is in for a shift, not a revolution.

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