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Bachelet’s Reforms, Challenges for Chile Under the Microscope

By: Belén Marty - @belenmarty - Jun 30, 2014, 7:18 am

EspañolOn Friday, June 27, the Americas Society and Council of the Americas, in partnership with Chile’s Ministry of Foreign Affairs, led the ninth annual Latin American Cities Conference in Santiago. Featuring several Chilean ministers as speakers, the conference evaluated the potential for growth of the Chilean economy, the role of the country as a regional business leader, and the challenges and opportunities that the new administration of Michelle Bachelet faces.

The event began with the words of the president and CEO of the Americas Society and Council of the Americas, Susan Segal, who said that Chile is the most admired country in Latin America and reminded the audience that it has free trade agreements with more than 61 countries.

“Chile is positioning itself as a major leader, not only in Latin America but throughout the hemisphere.… I am convinced that this time we will arrive at a consensus that will push the country to the next level of economic development and social inclusion. We must have confidence in the ability of Chile to make wise decisions.”

The conference featured guests from the private sector, the business community, civil society, and government officials. The latter were eager to point out that the promotion of investment and economic development were compatible with the deep reforms being carried out by President Bachelet.

They said that these reforms are designed to bridge the inequality gap, creating opportunities for all Chileans, eliminating education as a for-profit activity, and achieving social inclusion.

In a speech lasting approximately 20 minutes, Heraldo Muñoz, Chile’s foreign minister, stressed that Chile has been an example of good practice in public policies for the last 25 years. He said Bachelet’s administration will seek to continue the country’s record in this regard, but that it is necessary to recognize that there are now greater demands for equality and education.

“There are sectors that rose from poverty to the middle class. Poverty has declined from 39 percent of the population to less than 13 percent, and extreme poverty is almost nonexistent. So, people’s demands are growing,” Muñoz said.

He added that Chile remains one of the 20 most unequal countries in the world in terms of income distribution; a fact that, in his view, represents a challenge. “That’s the reason for Bachelet’s three reforms. Education reform is aimed at obtaining high-quality, nonprofit public education. Tax reform seeks to secure resources for financing education, healthcare, and pensions. Thirdly, the constitutional reform is necessary for establishing a modern and fully democratic constitution.”

Finally, he said that the country’s stance on foreign trade will remain the same: “Chile will remain open to the world because that is the strategy for success. We need more markets to create more jobs and prosperity.”

Luis Felipe Céspedes, minister of Economy, also spoke at the event. He noted that Chile’s growth over the last several decades was in large part due to its openness in foreign trade, solid institutions, and macroeconomic stability, all factors that allowed it to respond favorably during the recession of late 2008 and 2009.

However, Céspedes explained that social inclusion is the key that will enable Chile to become a developed country. He also highlighted that this requires policies that allow for an important increase in the productivity of both capital and labor.

Céspedes mentioned that the Chilean government needs small and medium enterprises, which are now stalled, to become significant channels for investment and economic growth.

“Growth depends on the correction of market failures. The state’s role is key in providing public goods that allow for the creation of more private investment,” said the minister.

Private Sector Responds to Bachelet’s Policies

One of the central features of the conference was a panel lead by entrepreneurs, moderated by Nicolás Paut Vicuña, economic editor and presenter of CNN Chile’s Economic Agenda. The panel focused on the private sector’s overall views on the current situation of the country.

In this regard, Víctor Hassi Sabal, Director for Chile at MetLife and CEO of ProVida, commented, “As an entrepreneur, I’m used to challenges.” He said he was concerned about the details of the tax reform.

Carlos Barrera, an expert on energy issues and vice president and director for Latin America at SunEdison, noted that the country has great long-term potential in energy markets.

He explained that this is mainly due to three factors: “First, Chile’s wealth in natural resources. Second, the political and social environment [in Chile] is much more stable than in the rest of Latin America. And third, there is a growing demand for energy. And there are many companies interested in investing in Chile.”

Barrera said that many of the changes being implemented by Bachelet at the moment will bear fruit in the long term, and “not tomorrow.”

“The government wants to make a statement. In the energy sector, we are concerned mainly with the tax reform and the government’s energy agenda. What the government says makes sense. We are moving in the right direction, but we need clarity on the policies for areas like energy distribution. We need more details.”

Máximo Pacheco, minister of Energy, harshly criticized the fact that Chile has been measuring its performance as a country exclusively with economic indicators, while neglecting social indicators.

“The judgments of anthropologists, sociologists, historians, and philosophers have been ignored. Today, we can not explain the reality of the country with only Excel spreadsheets,” he said.

Pacheco reminded the audience that Chile has neither gas, oil, nor coal. “What we have is water, solar radiation, and wind.” He said the country must develop its water resources to generate electricity.

“Our development will be sustainable. We need to build a balanced and diversified energy infrastructure. It has to be a socially legitimate energy matrix, with respect for the environment and communities,” he said.

Finally, Alberto Arenas de Mesa, Chilean Finance minister, stressed the need to resume the path of growth through increased productivity and diversification of investment. He said that public-private partnerships could be ideal tools for achieving this goal.

“We will create new incentives for investment and savings in Chile,” he concluded.

Translated by Alan Furth.

Belén Marty Belén Marty

Belén Marty is the Libertarian Latina, a journalist based in Buenos Aires, Argentina. She has lived in Guatemala, Jordan, the United Arab Emirates, and the United States and is a former candidate for local office with Argentina's Libertarian Party. Follow @BelenMarty.