Chile’s president aims to soothe investors over reforms

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Michelle Bachelet, Chile’s president who returned to power in March, has sought to calm investor fears that her ambitious reform programme would undermine the formula behind more than two decades of robust economic growth.

“I wasn’t a populist in the past, and I’m not one now,” Ms Bachelet said in an interview with the Financial Times, explaining that while she intended to fulfil her campaign promises to overhaul the country’s tax and education systems, she would do so in a “reasonable” and “gradual” way.

Ms Bachelet, who ran the UN’s organisation for women after her previous presidential term ended in 2010, won a landslide victory in December’s presidential election on a platform that included free university education. To fund this she plans to raise an additional $8.2bn in tax revenues, equal to 3 per cent of the world’s top copper producer’s gross domestic product.

However, with China’s demand for copper slowing, opposition and business groups fear Ms Bachelet will erode the economic policies that have made Chile the richest country in the region.

“Our economic model has been praised,” said the former paediatrician, referring to the “Chilean miracle” that transformed what in the 1970s was one of Latin America’s poorest countries into now one of its most stable and prosperous economies. “But although it has been successful in achieving economic growth, we are a country with great challenges in inequality.”

She added: “Chile has changed – it is not the same Chile I governed before. People are more conscious of their rights and they are much more demanding.”

Indeed, the presidency of Sebastián Piñera, her predecessor, was marred by large student demonstrations, with as many as 1m people taking to the streets of Santiago, the capital, to protest against inequality.

Observers say Ms Bachelet must now tread a fine line between correcting the weaknesses in an economic model first started under the dictatorship of General Augusto Pinochet, without pandering to the demands of a radical student movement that does not represent the majority.

“We are looking at how we can keep doing the good things we were doing before, while introducing a series of new elements which will allow the economy to keep growing, but at the same time as society develops in a more harmonious way,” she said.

Emphasising the importance of maintaining a strong business climate and clear rules for foreign investors, Mr Bachelet criticised the failure of previous governments to reduce the country’s dependence on copper, which accounts for 60 per cent of Chile’s export revenues. Such a high exposure to a single metal makes Chile very vulnerable to an unwinding of the commodities boom.

“That is why it is so important to diversify the economy,” she said, rejecting claims that Chile’s economy was slowing because of a fall in investment owing to uncertainty over her government’s plans. She said the economic slowdown began in early 2013, before she was a presidential candidate.

Many economists have criticised her planned tax rises, approved by the lower house and not expected to be changed significantly by the senate.

But more controversial are the proposals to plough most of the extra tax revenues into education reforms that critics say are more focused on putting education under state control than improving quality.

Ms Bachelet insisted that Chile needed to improve its human capital by focusing on the quality of education. She is also seeking to implement a series of measures aimed at lowering some of the highest energy costs in the region.

Others are concerned that Ms Bachelet will simply fail to deliver on her promises, aggravating existing frustrations and paving the way for a truly populist leader to take power.

“The best way to prevent populism from arising is to make progress in defeating inequality, speak the truth and fulfil one’s promises,” she said, while admitting that some of the positive effects of her reforms, especially in education, will not fully materialise during her presidency.

Nevertheless, someone has to start the ball rolling: “There are certain things that have always been part of the landscape in Chile that one never questioned because they were just there. But suddenly, you say, you know what? Chile can do better, Chile can aspire to so much more.”

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