A New Way of Governing

President Sebastián Piñera’s first State of the Union speech given on May 21 was one of the most highly anticipated speeches since Chile’s return to democracy 20 years ago.

It was the first May 21 speech by an elected center-right president in more than half a century and the timing of the speech was crucial. Not only is this year Chile’s Bicentennial as an independent nation but it came just over two months after one of the strongest earthquakes ever recorded wrought terrible destruction across a large part of the country.

Unsurprisingly, the speech focused on the government’s reconstruction plan, which has dominated the President’s agenda in his first few months in office.

“The earthquake has played to the President’s political strengths, allowing him to act the efficient manager,” said Sofia Correa, a lecturer at the University of Chile’s law school and a leading historian of Chile’s political right.

According to Correa, the speech was “highly successful,” managing to silence critics through a range of measures and his ambition to introduce a “new way of governing.”

Starting with reconstruction, Mr. Piñera’s speech highlighted the government’s considerable achievements to date that have included getting 1.25 million children back to school despite badly damaged or destroyed infrastructure; building 50,000 emergency shelters for families left homeless; and, reestablishing water supplies across the worst hit region.

But this is just the beginning and much remains to be done. The state’s reconstruction bill will run up to US$ 8.4 billion, which Finance Minister Felipe Larraín has said will be covered by fiscal measures including a temporary hike in corporate income tax, shuffling the budget, a new royalty scheme and Chile’s first ever global peso bond issue.

Mr. Piñera also called on the private sector, including companies and non-government organizations, to make sacrifices and play their part in the reconstruction.

“It’s going to take a huge effort and it will be mainly up to the big companies and strongest sectors to help finance reconstruction projects,” said Piñera.

As is traditional, he also used the speech to set out his program for the coming years. And, despite the challenges brought by the earthquake, much of his original program remains intact including measures to boost job creation, increase economic growth, fight crime, improve education and healthcare and deepen democracy.

President Piñera returned to pledges made on the campaign trail, such as creating 200,000 new jobs a year. He also stood by his goal to achieve average economic growth of 6% annually during his term and promised to increase investment to 28% of GDP from 22%.

Small and medium-size companies, a key pillar of the new government’s program, will enjoy an income tax exemption for profits reinvested in their business. The government has also reduced the time needed to start a new business to 16 from 27 days, which will benefit entrepreneurs.

But the success of Mr. Piñera’s program will depend to a large extent on how the world economy behaves over the coming months and years, notes Hugo Fazio, an economist at the left-leaning National Center for Alternative Development Studies (CENDA).

The government’s fiscal plan, as outlined by Minister Larraín, relies heavily on tax revenues derived from an improvement in economic growth during the next four years.

But given the open nature of Chile’s economy and its dependence on copper exports, how its major trading partners fare will also be important. “Chile is vulnerable to an extraordinary extent to the world economy, especially China’s… how can the government have an influence over this?” asked Fazio.

But if all goes according to plan, Chile will become a developed country by the end of this decade which means not only economic growth but also social development.

“Before this decade is over… Chile will have achieved integrated development that brings opportunities for material and spiritual progress for all our children,” Piñera said in his speech.

More of the Same

As well as looking to make the Chilean economy leaner and meaner, Piñera outlined plans to extend the social safety net, building on progress by previous Concertación governments.

Piñera paid homage to all four Concertación presidents – Patricio Aylwin, Eduardo Frei, Ricardo Lagos, and Michelle Bachelet – and took a page from the Ms. Bachelet’s book on pension reform by promising to gradually eliminate a 7% mandatory healthcare contribution currently discounted from pensions.

The President also announced an “ethical” family subsidy of up to US$ 475 a month for poor families that meet certain conditions like sending their children to school and looking for work if the parents are unemployed.

 “Some of the program outlined on May 21 would not have looked out of place in a Concertación speech,” noted Correa.

Introducing automatic voter registration and making voting voluntary, effectively adding 3.5 million Chileans to the electorate, is another long-held Concertación ambition that Piñera has adopted as his own.

“It was the speech of a President marking the start of a new cycle in our country’s political history… but also tacitly establishing continuity with the previous cycle,” said Oscar Godoy, a political science professor at the Catholic University, in a report published by the Santiago think-tank Centro de Estudios Públicos (CEP).

Similar to Aylwin, who led the first Concertación government after Augusto Pinochet stepped aside in 1990, Piñera’s program incorporates social and economic policies begun by the previous government.

“It’s perfectly understandable, though not very reasonable, that the opposition should be concerned about this continuity… good public policies should not be the property of any one party,” said Godoy.

Nevertheless, Piñera is no Concertación clone. He has created his own style of governing based on efficiency, results and accountability. Beyond social policies his ultimate aim, according to Godoy, is to create the conditions so that all Chileans, regardless of their background, can succeed through hard work and determination.

To that end, Mr. Piñera aims to eradicate “extreme poverty” by 2014 and completely wipeout poverty by 2018. Such goals are not new, but Piñera put the target in concrete terms, noting that it would require less than 1% of GDP to lift 3.5 million Chileans out of poverty.

“In our country, beating poverty is an absolutely achievable goal during this generation and during this decade,” he told Congress.

United by Tragedy

As the past has shown, earthquakes can make or break Chile’s presidents.

The 1938 earthquake gave then-President Pedro Aguirre, of the left-wing Radical party, the necessary political capital to push legislation through congress to create a new state entity focused on rebuilding the country and stimulating economic development.

The result was the state’s economic development agency, the Corporacion de Fomento de la Producción (CORFO), which continues today and was a major factor in Chile’s industrialization, helping to create the country’s steel, power and sugar industries.

Jorge Alessandri, Chile’s last democratically elected center-right president who governed from 1958 to 1964, was less lucky with the much more destructive 1960 earthquake.

Like Piñera, Alessandri was a successful businessman. Prior to becoming president he chaired the paper company CMPC and Chile’s national business association, the Confederación de la Producción y el Comercio (CPC).

And Piñera has also named figures with a background in the private sector to his cabinet such as Mining Minister Laurence Golborne, a former CEO of retail group Cencosud, and Labor Minister Camila Merino, a human resources expert who worked for chemical and fertilizer producer SQM before heading up Santiago’s state-owned Metro.

But the leaders inherited two very different countries. In 1960, impoverished after years of economic mismanagement, the country lacked the resources to overcome the disaster alone.

Alessandri pleaded for unity after the earthquake but the government lost its early popularity and was forced to backtrack on many of its pro-market reforms to please new allies, marking the start of a crisis of the old right.

Fifty years later, President Piñera leads a country that has recently recovered from the worst global economic crisis since the Great Depression and is often held up as an example of fiscal discipline.

Of course, there is room for improvement and, like Alessandri, Mr. Piñera has called for a government of “national unity,” a key theme in his speech both in terms of reconstruction after the earthquake and in the push to become a developed nation by the end of this decade.

But a government of national unity does not necessarily include everyone, warns Correa.

“Someone is always left out,” she said, adding that calls for unity in Chile’s history have often marked the first step in the creation of a new governing coalition.

A New Way

Although many of General Augusto Pinochet’s former collaborators are members of the Alianza coalition that supported Piñera during the election, the President has upheld a campaign pledge not to appoint any of them to his cabinet.

He has also distanced himself from the parties in the Alianza coalition including the National Renovation party (RN) and the Independent Democratic Union (UDI), filling his cabinet instead with figures from the private sector and reaching out to the Christian Democrats (DC), the most centrist of the parties in the Concertación.

This is partly explained by Mr. Piñera’s family background. He was a member of the National Renovation party and his brother, José Piñera, was labor minister under Pinochet, but the Piñera family has close ties to the DC: his father served as U.S. ambassador under President Frei Montalva and his other brother, Pablo Piñera, has held several government posts under the Concertación.

In the same spirit of bipartisanship, Mr. Piñera has named prominent DC figure Jaime Ravinet as his Defense Minister and former Concertación Minister Jorge Rodriguez on the board of state-owned BancoEstado.

Meanwhile, freed from the responsibilities of government, leftwing parties could take up more radical positions in areas such as state-controlled industries and the rights of workers and unions.

That could lead centrist Christian Democrats to break old bonds and seek to make their political home elsewhere, especially if the President is prepared to throw a few more olive branches their way, said Correa.

The more disciplined UDI party could be more difficult to control, but the decision to give Joaquin Lavin, one of its leading lights, the key education portfolio should limit its fire.

And if Mr. Piñera can combine strong economic growth with progress in areas including education, employment and security, he may soon attract more followers even among those fiercely opposed to his election.

“This could eventually allow him to form links with parts of the DC and perhaps others,” said Correa.

At this stage, it’s too early to tell if such a reshaping of Chile’s political map is at hand or to evaluate how well Mr. Piñera’s program is meeting the goals outlined in his speech.

The President does, however, deserve applause for projecting his program beyond the immediate needs of reconstruction and continuing from where the previous government left off, especially in terms of social policies.

Piñera faces similar challenges to other presidents at key times in Chile’s history including Alessandri in the early 1960s and Aylwin in the early 1990s, but he represents a new type of leader for the 21st century who is willing to put party differences aside in the interest of national unity, efficiency and progress.

Years from now Piñera’s May 21 speech could be remembered not just as the first speech after the February 27 earthquake, but as the beginning of new chapter in Chilean history that builds on the achievements of the past to create a better future.

Tom Azzopardi is a freelance journalist based in Santiago