John Paul Rathbone, the Financial Times’ Latin American editor, and Jude Webber, Southern Cone correspondent, interviewed Sebastián Piñera, president of Chile, at La Moneda presidential palace, Santiago de Chile, on Sept 13 2011. Below is an edited transcript of the interview.
Financial Times: You want Chile to become a developed country by 2020. What does “developed” mean to you – something more than reaching a certain GDP per capita figure?
Sebastián Piñera: It means much more than that. One of our main goals is to achieve what our parents and grandparents always cherished but never accomplished: to transform Chile into a developed country with equality of opportunity, without poverty, before the end of this decade.
You can put that in terms of GNP per capita of more than $25,000, versus $15,000 now. To achieve this we need to grow at an average of 6 per cent until the end of the decade. But what we are really looking for is much more than that.
It includes being able to build a society without poverty, with real equality of opportunity, and fewer inequalities. And even more than that: it means sustainable growth.
And finally there are values that I think are very important, which include the value of life – including those that are yet unborn; the value of family; of solidarity. At the end of the day, what we want is for Chile to be happier – and happiness has to do with all of these things.
FT: Of those values associated with development, what about diversity? This is a country known for its social conservatism. Is this a part of the Chilean character holding back your vision?
SP: I dream of a country with no discrimination whatsoever, and which does not discriminate on the basis of ethnicity, gender, religious background or sexual choice.
At the end of the day I believe in an integral concept of liberty and freedom. To have a truly free country, you have to be free in every aspect. The best mechanism we have invented for political freedom is a real democracy. The best mechanism for freedom in the economic field we have yet invented is a social market economy.
But you also have to be free socially and for that we need to defeat poverty. And, finally, we have to be able to not only tolerate diversity but also appreciate it. That is the making of a real, free country – and I believe in freedom. Of course, we will have to fight many, many prejudices and discriminatory attitudes, but that is part of our challenge. A really free country should not discriminate – indeed we are tabling a non-discriminatory law.
FT: You have talked about how laws need to be respected, and now about values.
One criticism made is that you have two ministers in your cabinet who essentially break the law by making profits from education – although the law forbids profitmaking universities. Why are these people still in your cabinet?
SP: I don’t agree with your statement. I don’t have any evidence, whatsoever, that they have broken any law. Both of them were involved in the creation of a very good and prestigious university. And that university, according to Chilean law, is a non-profit university.
FT: But they also have positions in companies that have benefited from transactions with the university, by renting it land, school buildings etc.
SP: That is not forbidden. If those transactions have been at market prices and under normal conditions, that is not illegal.
So I think when you say someone has broken the law, you have to be very careful. I have no evidence, and nobody has ever told me that they have broken the law. It is being investigated; like all of the 59 universities and higher education schools are being investigated.
But in fact I think innovation and entprenurial capacity are needed in Chile in order to achieve our goals. So I am not against innovation. On the contrary, I think Chile needs more innovation, more entrepreneurial capacity. Therefore somebody who was able to create a university from scratch, and turn it into a good and very prestigious university, within the law, I think that is an asset and not a liability.
One more thing: we were elected by a democratic majority. We are honouring our commitments, and we are working very hard at putting our best talents to improve the quality of life for the Chilean people. That is our goal. It is our only goal.
FT: Polls don’t suggest Chileans are very happy at the moment, especially with the student riots in the streets.
SP: Actually I agree with the main goals of the student movement. What they are saying and telling us is not about our government – they are criticising former governments. The educational system in our country does not have the quality it needs, the access and coverage it needs, and therefore it needs to be changed.
Therefore I agree with them. I don’t see them as a threat but as an opportunity. In some respects, I am even grateful to them for the chance to do it because they have been able to put on the table the educational issue, which is extremely important.
Education is the mother of all battles, and we will win or lose our battle for the future in the educational sector. They have made a very strong contribution, though of course I disagree when some of them start using violence and destroying private and public property, or setting schools on fire. That is not the way. The way to improve the quality of education is with dialogue, looking for agreements and hard work. I hope that we will be able to convince them that that is the way for them to achieve their own goals – which are also our own goals.
FT: You have said you are going to spend an extra $1bn a year on education for the next four years. But what will happen to spending beyond that?
SP: The world does not end then, I hope, so we will continue to raise spending. Furthermore there is a lot to do if Chile is not to get stuck in the middle income trap.
Very few countries have – you can count them on the fingers of two hands. We have to do many things at the same time: we need to improve education, the quality of health, public order, infrastructure, to defeat poverty, to invest much more in science and technology, to increase entrepreneurship, to boost our growth rate, to increase investment.
So we need to do many things. But we are human beings, and we cannot do miracles.
FT: Nobody doubts the ambition of your ideas or your energy. But what is your shortlist of priorities?
SP: To recover our leadership and dynamism in terms of economic growth, employment, productivity, exports. And together with that, two other things. To improve substantially the quality, access, financing and coverage of our educational system. And to defeat extreme poverty in our four years of government. Those are our main goals.
One more thing: at the start of my presidency we were hit by an earthquake that was the worst in the country’s history. Its total cost has been estimated at $30bn, or 17 per cent of GDP. And despite that, we have been able to reconstruct 61 per cent of what was destroyed, and we have recreated our economic and employment capacity. So the results have been remarkable, much better than we thought.
Still, people always want more. The Chilean people have become very aware of their rights, and they are impatient. In some senses that’s good, as it puts a lot of pressure on us to perform. But we also have to be realistic. We cannot go faster than our real possibilities. We have a very ambitious government programme, and on top of that we have had to engage with reconstruction after the worst earthquake in our history.
FT: Some business people worry that political disarray can lead to economic disarray and there is a concern that your low popularity is starting to define your legislative agenda – what you can, cannot or want to achieve.
SP: We are worried too. We are not blind, we are not deaf, and of course we listen to what people are saying. But we are very confident that we are doing what has to be done.
Don’t judge us by our intentions, but by our results. After the earthquake and tsunami hit the country, to be growing at 8.4 per cent during the first half of this year, and creating jobs like never before, all the while increasing exports, investment and salaries – and at the same time addressing long overdue and big reforms, such as of health and education – I think it’s a very good performance. At least, that is what the numbers and the international experts tell us.
FT: What do you expect the next poverty survey to reveal in 2012?
SP: From 1990 until 2006, poverty levels fell from 40 per cent to 13.5 per cent. Unfortunately, from 2006 to 2009, poverty made a comeback and rose to 15.1 per cent.
But we now have good reasons to expect that poverty is starting to come down again.
The good news is that the creation of more than 500,000 jobs, the almost 3 per cent increase in wages, combined with the government’s “ethical family income” programme will help with this.
The bad news is that the price of food has gone up significantly, and the poverty line basically depends on the price of food.
Still, if you take all those effects into consideration, we are still expecting to see a significant reduction of poverty levels in Chile. One of our targets is to end extreme poverty by the end of our government. The poverty line, which includes clothing and shelter, as well as food is of course higher.
FT: What about the tax increases people have talked about and that could be used to fund higher educational spending? Will the 20 per cent corporate tax rate be maintained, or fall back to 17 per cent as originally planned?
SP: Don’t put the cart before the horse. We have two very important macroeconomic rules: one is that we have to recover what we call our structural fiscal balance, which was lost during the last government, in order to restore the health of our public finances.
And secondly, we think that the rate of public spending growth should not exceed GNP growth. There are many sources of finance for public expenditure. The most powerful one is growth. When you grow at 2.7 per cent, which was the average of the last government, you are getting $1.5bn of extra revenue per year for the public sector.
When you grow at 6 per cent, you are getting $3.6bn so the difference is $2bn and the tax reforms that some people are talking about represent $1bn. So basically the most powerful source of permanent revenues is economic growth.
The second source is to improve the quality of public spending and third, if needed, we will consider tax reform. It’s not a question of growing for two years at a very high level and then coming back to 2 per cent. We need to grow at 6 per cent on average for the next 8 years to be able to overcome underdevelopment and defeat poverty. At the same time, we are aware we have to distribute growth in a much fairer way.
FT: Is it a problem to have high profits at the healthcare funds, ISAPRES, and then to see them putting up their charges?
SP: We have a mixed health system, public and private. All the subsidies go only to the public sectors and 80 per cent of Chileans are protected by the public health sector.
In the private health sector, you have roughly 20 per cent of the population, and there are many companies that compete. We don’t believe in for-loss corporations and therefore the issue is not whether they are or not making money. The important thing is whether we do have a competitive sector and are people really well informed. I think that we have to improve the level of competition and transparency, and we are working on that.
FT: You mention transparency. Yet there have been mixed signals coming from the government about tax increases.
SP: Felipe Larraín, the finance minister, has said that we have enough resources to finance our government programme as it is today.
Pablo Longueira, the economy minister, is saying that if we want to go beyond our government programme and put more goals, we might need to increase taxes. Both of them are right, and that’s a decision that has to be taken by the president at the right moment.
Tax reforms are never announced; when you think they are necessary, you just do it. Socialists think from the moment they wake up until they go to bed about how to increase taxes. From the moment we wake up until we go to bed, we think about how to improve people’s quality of life. You can compare the results of those two models in the modern world.
FT: Is the Chilean model broken?
SP: It is not broken. It has been extremely successful but it needs some adjustments which are very necessary and that’s normal when you’re progressing – you face new challenges, you have to address new needs. When countries are very poor they care basically for food and shelter.
When you are progressing and achieving $15,000 per capita income, you start to worry about other things – the quality of education and health, protection of the environment. We are at that place. The model is not broken. I haven’t heard anybody proposing an alternative model. Should we go back to socialism and nationalise all enterprises? Of course not.
What we need to recognise is that we have to improve the quality of the public sector particularly to create a more fair and just society with more equality of opportunity. We are working on that with our hearts, souls and minds.
FT: Has your decline in popularity touched bottom?
SP: I think so. But what is happening in Chile is very curious. Normally, when the government loses support, the opposition gains support, which is not the case now.
FT: Is there a need for a new political model?
SP: We also need to improve the quality of our democracy and we have sent to Congress many bills, for instance automatic registration in the electoral system. Young people not voting is a big challenge for us – having 4m people who don’t vote and only 8m who do is an issue we have to face. We are having a discussion regarding our electoral system and we are ready to see ways to improve it.
FT: Where do you see the global economy heading?
SP: Of course we will be hit, but fortunately we have a very diversified international trade and our main trading partner by far is China and China is still growing, not as fast as last year, but still growing at 7, 8, 9 per cent.
We expect that the copper price will remain high and that will help the Chilean economy substantially, that’s why we are predicting that despite all this noise and these threats in the international economy, next year, the Chilean economy will grow at 5 per cent which will be among the fastest in the OECD.
So we are concerned, but we are also confident. And remember that the average rate of growth for the former government was 2.7 per cent so to be able, despite the worst earthquake in our history, to more than double that is very significant.
FT: Regarding your goals to create a million new jobs and boost growth to an average of 6 per cent a year, are you on target?
SP: We are on target. We are better than on target, but we will face difficult times next year.
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