By Andres Oppenheimer
There are fears that Chile will cease to be an economic model for Latin America following violent protests that left at least 24 dead in recent weeks and ended with a political agreement to rewrite its constitution. However, there are reasons to be cautiously optimistic about the country’s future.
Granted, there will be major — and much needed — corrections to the country’s free-market economy. Under the new political agreement, there will be an April 2020 referendum on a new constitution, which is likely to result in reforms that Chile’s business community has long resisted.
Until now, many Chilean business leaders had opposed larger government subsidies for health, education and pensions. They argued that Chile’s system did not need major changes because it by far was the most successful in Latin America.
And, on a macroeconomic level, they were right. Over the past 30 years, Chile has reduced poverty to 10% of the population from 40%, according to official figures.
Chile also ranks first in Latin America — and 44th among 189 countries — in the United Nations Human Development Index. The U.N. ranking counts not only economic growth, but also health and education standards.
And, contrary to what many critics say, Chile has lower inequality levels than many other Latin American countries. According to the Gini Index, which measures the gaps between the rich and poor, Chile’s inequality rate dropped from 0.57 to 0.46 between 1990 and 2015.
But many Chileans are unhappy, as shown by the record numbers of people who took to the streets to protest recently.
They have heard their presidents in recent decades cite macroeconomic figures showing that Chile was close to becoming a developed country, yet most Chileans felt they were far from living like people in rich countries. Many Chileans were not doing as well as Chile.
On Nov. 15, after month-long riots sparked by a rise in transportation fees, the country’s major political parties reached an agreement to hold a referendum in April 2020.
It will ask Chileans whether they want a new constitution, and whether it should be drafted by citizens or by a combination of citizens and legislators. The drafters of the constitution would be elected in October 2020.
In an interview last week, I asked foreign minister Teodoro Ribera about business concerns that the new constitution will scare away investors and perhaps even turn the country into a new Venezuela.
“I don’t know anybody among those who protested on the streets who has questioned democracy, or wants to return to a socialist system, or a state-run system, or a system such as that of Venezuela,” Ribera told me.
The foreign minister added that Chileans “want the economy to keep growing, but also to have a safety net in case they get sick, a safety net for when they get old. As the economy keeps growing, we will be able to allocate more resources to solve these problems.”
Pessimists argue that it won’t be easy, because the economy is likely to slow down. Domestic and foreign companies will be reluctant to invest in the country until it becomes clear what the constitution will say. And even after that, skeptics argue, companies may be reluctant to invest in a country that most likely will increase corporate taxes to fund social programs and give more power to unions.
Maybe I’m too much of an optimist, but I think that Chile may be able to restore business confidence — by default. Neighboring Argentina’s incoming leftist populist government will most likely worsen long-term economic growth; Bolivia is in turmoil; Peru is in a political stalemate; and Mexico’s economy has taken a downward turn. Where else in the region will investors go?
If Chile’s likely new constitution guarantees basic economic freedoms, many investors may see the country as an island of stability in an otherwise unstable region. It may not happen, but Chile has the opportunity to become an even better and fairer economic model for Latin America than it has been for the past 30 years.