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The fight for the future of Chile

On the way to La Vega market in central Santiago, a lonely plinth once adorned by the statue of a 19th century war hero — General Manuel Baquedano — is now covered in graffiti, ​​the protesters’ slogan “Victory or Death” staring out at Christmas shoppers passing by. Windows in some nearby buildings that were looted two years ago during violent street demonstrations remain shuttered, and the residents of once sought-after apartments overlooking Baquedano Square have moved out.

The capital of Chile, Latin America’s one-time paragon of economic success, is still reeling from the explosion of anti-government protests in October 2019, when troops were ordered back on to the streets for the first time since the dictatorship of General Augusto Pinochet, which ended in 1990.

The unrest, triggered by a small fare increase on the Santiago metro, quickly translated into mass protests over inequality and high living costs, which were punctuated by episodes of arson, looting and violence that alarmed Chileans used to decades of order and stability.

“The country was ungovernable,” says Claudia Heiss, head of political science at the University of Chile, of the period. “Churches and state buildings were ransacked. Schools had to close [ . . .] There was a total disruption to the day-to-day lives of Chileans — and months later came the pandemic, which generated new levels of instability.”

The South American nation of 19m now faces a bitterly fought presidential run-off election on Sunday between two men with diametrically opposed views. At stake is not only the immediate future of Chile, the world’s largest copper producer, but also the verdict on four decades of free-market economic policies which were imitated around the world.

Ahead of the poll, Chileans are talking of little else. The contest has divided families and sparked furious arguments between friends. Supporters of the ultraconservative candidate José Antonio Kast — who came out on top in the first round of voting on November 21 — fear his opponent, the former student union leader Gabriel Boric, will follow in the footsteps of Hugo Chávez in Venezuela, radicalising once in power and building an authoritarian socialist state. Boric fans hate Kast’s praise of the Pinochet dictatorship and worry he will roll back social reforms such as gay marriage and limited abortion.

The winner will also face the unpredictable outcome of a redrafting of the country’s constitution, by next July, which may curtail presidential power.

Boric, a bearded and tattooed 35-year-old who emerged from the hard left, is ahead in most polls. Backed by a coalition which includes the Communist party, he has pledged to enact the street protesters’ agenda: higher taxes, more public spending, a reduction in the working week, the scrapping of private pension schemes and a long list of reforms intended to empower women, indigenous groups and minorities.

His rival, Kast, a 55-year-old father of nine and staunch Catholic, has vowed to defend economic freedom, law and order and traditional family values. He has promised to dig a 3-metre-deep ditch across northern Chile to keep out migrants from as far away as Venezuela and Haiti, an initiative which has proved popular in border regions.

Journalists watch a debate between presidential candidate Gabriel Boric, from the Apruebo Dignidad coalition party, and rival Jose Antonio Kast, from the Partido Republicano, in Santiago, Chile
Journalists watch a debate between presidential candidate Gabriel Boric, from the Apruebo Dignidad coalition party, and rival José Antonio Kast, from the Partido Republicano, in Santiago, Chile © Esteban Felix/AP

At the bustling La Vega market vendors appeared tired from two long years of upheaval and uncertainty, on top of coronavirus restrictions, that have had a crippling effect on business.

Maria Jorge Godoy, a 30-year-old who inherited a stall from her mother three years ago, says she will vote for Kast. “I can accept having some of my rights as a woman being questioned, but I cannot accept poverty,” Godoy says, reiterating how Kast had promised to cut taxes and support small businesses.

But voting intentions among market vendors, she adds, are roughly equally split: “We Chileans want stability and calm [ . . .] and we’ll choose the person who gives us that.”

Bar chart of GDP per capita ($, purchasing power parity), 2021 showing Chile is the richest country in Latin America

Both candidates have hewed to the centre ahead of polling day, trying to woo the large number of voters who are undecided or unenthusiastic about either option. Boric has scaled back planned tax rises on businesses and wealthier individuals from an additional 7 per cent of gross domestic product to an extra 5 per cent, while Kast has accepted a more gradual timetable for cutting corporation tax and promised not to reverse social reforms.

Struggling to combat perceptions that he is too inexperienced and radical for high office, Boric has trimmed his once-generous beard, cropped his hair and started emphasising fiscal discipline. Kast has rowed back on some of his praise of the Pinochet era and abandoned some of his more polemical social policies. Both have largely avoided interviews with the foreign media, including the Financial Times.

What many observers, and voters, want to know is how Boric or Kast would behave in office. “Governability is going to be hard, or impossible in Chile if either candidate sticks to their manifestos and fails to compromise and reach across the aisle to other parties,” says Jaime Baeza, a political scientist at the University of Chile.

Chilean presidential candidate Jose Antonio Kast greets supporters during a campaign rally in Santiago
The ultraconservative candidate José Antonio Kast came out on top in the first round of voting on November 21 © AFP via Getty Images

‘The Switzerland of Latin America’

Since the end of the Pinochet dictatorship, Chile has consistently outperformed most other Latin American economies. Its steady growth, stable regulatory regime and business-friendly governments earned it the sobriquet “the Switzerland of Latin America”. 

Centre-right governments alternated with centre-left administrations but neither fundamentally questioned the country’s free-market model, underpinned by a constitution dating back to the Pinochet era, although heavily revised since.

Influenced by a group of economists who studied at the University of Chicago under Milton Friedman, Chile pioneered policies such as the privatisation of state assets in the 1970s and the introduction of private pension schemes made up of individual retirement accounts.

Line chart of Annual % change in GDP showing Chile's economy is bouncing back from a pandemic recession

Then, as Chile grew wealthier in the 1980s, its stratified conservative society started to break down. Access to university education for the first time and less deference, meant that the country’s youth were less and less satisfied with the status quo that their parents had accepted unquestioningly.

“There is a new generation of young people who did not live through the dictatorship and whose expectations have gone through the roof,” says Andrés Velasco, dean of the School of Public Policy at the LSE and a former Chilean finance minister. “Chile is a country which has changed socially at breakneck speed and become a more open and progressive society. But that leaves conservatives feeling queasy.”

There were other problems with the Pinochet-era free-market model. Income inequality in Chile remained among the worst in the OECD, though similar to most of Latin America. Public services gained a reputation for being inadequate or expensive, or both. The first generation to retire on private pensions discovered that their savings were too meagre to fund a decent standard of living in old age.

Gabriel Boric greets supporters during a rally in Santiago this month
Gabriel Boric greets supporters during a rally in Santiago this month © AFP via Getty Images

This pent-up frustration boiled over in the October 2019 protests, which took the country by surprise. Less than two weeks before masked and hooded rioters took to the streets, burning more than 20 metro stations, setting churches ablaze and looting shops, the country’s president, Sebastián Piñera, had told the Financial Times that his country was “an oasis of stability” in a restless continent.

Piñera, a conservative billionaire, responded to the initial wave of riots by ordering the army on to the streets, declaring “we are at war with a powerful enemy”. But as the protests intensified, he was forced into concession after concession, giving way to an ever-growing list of spending demands to stave off calls for his resignation. Then, when the coronavirus pandemic hit Chile, the government responded with one of the developing world’s most generous emergency aid programmes, worth a total 14 per cent of GDP according to Fitch Ratings, and the deficit ballooned.

Government debt shot up from 25.6 per cent of GDP in 2018 to an expected 37.3 per cent next year, according to the IMF — still one of Latin America’s lowest levels but an increase of nearly half in just four years. At the same time Chile’s congress caved in to demands for savers to be allowed to cash in part of their pension pots early, authorising three successive withdrawals which injected an additional $49bn into the economy.

Bar chart of Gini coefficient (0 = complete equality, 1 = maximum inequality), 2020 or latest available data  showing Chile’s income inequality is one of the highest in the OECD

After contracting 5.8 per cent in 2020, Chile’s economy is now roaring back. Growth is expected to top 11 per cent this year, one of the fastest rates in the Americas, as Chileans scramble to spend their pandemic savings and early retirement money by bingeing on imported goods from cars to electronics.

“The Chilean economy is on drugs,” says Robert Funk, a political scientist at the University of Chile. “No one wants to pull the plug on emergency government handouts that were introduced during the pandemic. But someone will have to.”

‘Two different Chiles’

Scratch the surface of the frenzied consumer boom and worrying signs appear. More than $50bn has been moved out of Chile since October 2019 as the wealthy shift assets abroad, according to a central bank official. Bond issuance on local markets has all but dried up after the pension withdrawals and Boric’s pledge to dismantle the private pension system, making Chile one of the biggest Latin American debt issuers on international markets this year.

Inflation is expected to hit 6.5 per cent in 2021, according to Oxford Economics, more than double the central bank’s 3 per cent target. This has triggered a series of interest rate rises but has not helped the Chilean peso, which has slipped from 711 to 845 against the dollar this year.

Yet it was not just the government spending that brought an end to the street protests. They only subsided after Piñera agreed in November 2019 to a referendum on a new constitution, to be written by a 155-member Constitutional Convention, elected by the public to handle the task.

The Toma la Cancha camp, on a hillside of the Lo Barnechea commune, in Santiago
The Toma la Cancha camp, on a hillside of the Lo Barnechea commune, in Santiago. Chile’s constituent assembly has vowed to address issues including water, labour and property rights © Martin Bernetti/AFP/Getty

The left saw the reworking of the constitution as an opportunity to enshrine its political demands for a bigger state and the ushering in of a social democracy akin to Scandinavia. The right fear the process could lead to a long list of expensive spending promises, wrecking the country’s hard-earned reputation for economic competitiveness and scaring off foreign investment.

“The strength of the Communist party behind Boric scares me,” says one senior banker in Santiago despite the politician’s insistence that he would be in charge. “I’m worried by his team — there are a lot of people with very little experience. Aggravating all this is the Constitutional Convention, where the left may try to get in a new constitution what they can’t get in parliament.”

The Constitutional Convention, which is dominated by the left, has until July to agree a new text to replace the one dating from the Pinochet era. This draft must then be ratified through a plebiscite within 60 days. For Chileans who want change it is seen as the most palpable victory of the 2019 protests.

“There are two different Chiles happening at this moment,” says Patricio Fernández, a journalist and one of the assembly delegates who range from schoolteachers and scientists, to housewives and social workers. “This afternoon we’re setting out new human rights guidelines for our constitution and across the street they’re writing same-sex marriage into law.”

Yet, adds Fernández, Chile could elect Kast on Sunday, who “is openly against both those ideas”.

Sitting beside Fernández in the assembly is a delegate from Chile’s vast northern desert region. Together they have vowed to address issues including water, labour and property rights and the need to protect the central bank’s independence, potentially introducing significant changes to Chile’s constitution which favours private enterprise. The new assembly could also choose to weaken the powers of the president and even curtail the term of the leader elected on December 19.

“Whoever wins [the presidential election] will need to govern as a moderate but the Constitutional Convention will not want to be moderate,” says Patricio Navia, a Chile expert at New York University. “If Kast wins, the convention will go bananas. A Kast presidency would be a very difficult presidency. People will start burning subway stations again.”

The other presidency

Just days after the presidential contest comes an important vote at the assembly. On January 4 delegates will elect a new president of the body. The role, which is rotated every six months, is currently held by Elisa Loncón, a Mapuche indigenous activist and academic, who has been labelled by critics as operating more as a radical activist than a stateswoman seeking consensus.

Venezuelan migrants are besieged by demonstrators during a protest march against illegal migration in Iquique, Chile
Venezuelan migrants are besieged by demonstrators during a protest march against illegal migration in Iquique, Chile © Martin Bernetti/AFP/Getty

Funk says Loncón has become a polarising figure. Whoever succeeds her will need to be more moderate or the assembly’s emphasis on identity, diversity and political independence will “make it impossible to actually agree on anything”, he adds.

Every poll published since the first round of voting on November 21 has shown Boric ahead in the race for the Chilean presidency, but his margin over Kast has varied widely. Reports that the gap is narrowing have galvanised both camps.

“If a lot of older people vote, the election will be very close,” Velasco says. “But [the new Covid-19 variant] Omicron is not Kast’s friend. If the over-60s stay at home, it could be a landslide for Boric. So a narrow Kast victory or a big Boric victory are both possible.”

Navia is not optimistic about Chile in the short term. “Chileans think the magic pill of electing Boric or writing a new constitution will get us to OECD levels of prosperity,” he says. “It’s not like that. It will take a lot of hard work.”

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