Chile has had an outsized influence on economic thought. During the 1973-1990 dictatorship of General Augusto Pinochet, followers of Milton Friedman’s free market creed initiated sweeping policies such as opening the economy to global trade, privatizing state-owned enterprises, and establishing private pensions. Margaret Thatcher was a fan.
Pinochet’s dictatorship began with a coup and ended with a terrible human rights record: more than 3,000 political assassinations and thousands more tortured or exiled. This era of repression was thankfully buried with a peaceful transition to democracy, but the pro-market economic policies of the dictatorship continued through successive elected governments. They are credited with making Chile one of the most investor-friendly developing countries and one of its fastest growing economies, albeit with persistent inequalities.
Chile enters a new era on Friday with the inauguration of Gabriel Boric, a young left-winger who represents a clean break with his predecessor, 72-year-old conservative billionaire Sebastián Piñera. At the same time, a specially elected assembly is completely rewriting the Pinochet-era constitution.
The hope is that Chile can reinvent itself to deliver European levels of well-being and social justice while preserving economic growth and the investments needed to fund it. The risk lies in Europe’s levels of growth and indebtedness, and in a rapidly expanding state that struggles to fund itself and spend wisely.
Both the new government and the constituent assembly are the result of protests that engulfed Chile from October 2019. The protesters demanded a fairer and more inclusive society, better public services and decent pensions. Boric was among the protesters and, at 36, belongs to their generation. He is deeply committed to the rights of women and indigenous peoples and respect for the environment. He was elected on a platform of steeply raising taxes to fund big improvements in public services.
Investors took fright from Chile’s left turn. More than $50 billion has left the country since street protests and businesses have postponed major projects. Boric tried to allay fears by appointing a respected technocrat, Mario Marcel, as finance minister and insisting on fiscal responsibility.
The new president has shown a statesmanlike will to heal the divisions caused by a highly polarized election. He strongly criticized the repressive regimes of Cuba, Nicaragua and Venezuela, much to the chagrin of his junior coalition partners, the communists.
So far, so good. But daunting challenges lie ahead. The economy risks stagnating with the withdrawal of the pandemic stimulus. Record prices for Chile’s main export, copper, are more than offset by higher energy prices. Boric does not have a majority in Congress, where each bill must be carefully negotiated.
The greatest risk of all is the unpredictable outcome of the constituent assembly. Elected during the pandemic with a low turnout, he is dominated by the radical left and maverick independents. Proposals debated so far (but not approved) include the creation of 11 separate justice systems for different indigenous groups, the abolition of the “bourgeois” separation of powers and the nationalization of mining.
Boric has a rare opportunity to show that Chile can once again lead the world, this time creating a fairer and greener society while preserving growth and private investment. This could be a new model, both for Latin America and for the developing world. But Boric will have to master the antics of the Constituent Assembly.