August 14, 2022

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Chile can once again be an example for the developing world

Chile can once again be an example for the developing world

Borek will seek to combine social justice and economic growth within an environmental framework.

Chile has had a disproportionate influence on economic thought. In the dictatorial government of General Augusto Pinochet (1973-90), followers of Milton Friedman’s free market doctrine pioneered such radical policies as opening the economy to global trade, privatizing state-owned enterprises, and creating private pensions. Margaret Thatcher was a fan.

Pinochet’s dictatorship began with a coup and ended with a horrific human rights record: more than 3,000 political assassinations and thousands more tortured or exiled. Fortunately, that era of repression was buried by a peaceful transition to democracy, but the pro-market economic policies of the dictatorship held out through successive elected governments. They are credited with making Chile one of the most investor-friendly countries in the developing world and one of the fastest growing economies, despite persistently high inequality.

Chile is entering a new era on Friday with the inauguration of President Gabriel Borek, a young leftist who marks an apparent break with his billionaire conservative predecessor Sebastian Pinera. At the same time, a specially elected council is rewriting the entire constitution of the Pinochet era.

The hope is that Chile can reinvent itself to deliver European levels of well-being and social justice, while maintaining the economic growth and investment needed to pay for it. The danger is that European levels of growth and debt will be hit, and that any rapidly expanding country will find it difficult to finance itself and spend wisely.

Both the new government and the Constituent Assembly are the result of the protests that erupted in Chile beginning in October 2019. The protesters demanded a more just and inclusive society, better public services and decent pensions. Borek was among the protesters, a 36-year-old of his generation. It is deeply committed to the rights of women and indigenous peoples, as well as respect for the environment. He was elected on a platform that seeks to raise taxes to fund major improvements in public services.

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Investors are afraid of the left turn that Chile has taken. More than $50 billion has left the country since the street protests and companies have postponed important projects. Borek attempted to assuage fears by appointing the eminent technocrat Mario Marcel as Minister of Economy and emphasizing fiscal responsibility.

The new president demonstrated a statesman’s willingness to heal the divisions caused by the highly polarized elections. He was highly critical of the repressive regimes in Cuba, Nicaragua and Venezuela, much to the chagrin of his coalition partners, the Communists.

So far, so good. However, there are great challenges ahead. The economy is at risk of stalling as pandemic stimulus is withdrawn. Record prices for Chile’s main export product, copper, are offset by higher energy prices. Borek lacks a majority in Congress, where every bill must be painstakingly debated.

The greatest danger of all is the unexpected outcome of the Constituent Assembly. He was elected during the pandemic with a low turnout, and is dominated by the radical left and dissident independents. The proposals discussed thus far include (although not approved) the creation of 11 different justice systems for different indigenous groups, the abolition of the “bourgeois” separation of powers, and the nationalization of mining.

Borek has a unique opportunity to show that Chile can once again set a global trend, this time creating a fairer and greener society, while maintaining growth and private investment. This could be a new paradigm, for both Latin America and the developing world. However, it will be necessary for Borek to control the ups and downs of the Constituent Assembly.

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