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Chile's President faces a double challenge

Piñera faces earthquake reconstruction and a credibility gap. But the two challenges may come together in an interesting way, albeit under pressure of events
David Dudenhoefer
19 April 2010

Conservative billionaire Sebastian Piñera was sworn in as Chile’s 38th president while the chandeliers and flower displays in their Congress swayed to aftershocks of the 8.8-magnitude earthquake that had fractured a large swathe of the country less than two weeks earlier. The tremors were a reminder that Piñera’s success as president will depend on his ability to lead an efficient recovery from the country’s worst natural disaster in 50 years. But they could also be interpreted as an omen that the country’s first president from the right since the military dictatorship of Augusto Pinochet ended in 1990 will have a rocky time in office, if he fails to run a transparent government that responds to the concerns of the average Chilean.

Outgoing Michelle Bachelet, a socialist backed by the left-of-center Concertación coalition, left office with an approval rating of 84%, whereas Piñera won just 51.6% of the votes in a second round marked by low turnout and voided ballots. But the natural disaster that wracked the country on February 27 produced a surge in patriotism and hopes that the new president – a 60-year-old, self-made magnate with a PhD from Harvard – would apply to the task of reconstruction the energy and acumen that has helped him become one of the nation’s richest men.

The quake led to a temporary truce between the country’s two main political blocks, Concertación and the Coalition for Change. But Piñera’s reluctance to fulfil his promise to divest from his business ventures before assuming the presidency, together with the hefty profit he earned from the sale of Lan Airlines stock two weeks into his term has already provoked a chorus of criticism and doubts about the new president’s priorities.

Credibility gap

According to the first opinion poll of his government, conducted by Adimark during his first two weeks in office, Piñera had a 52% approval rating. Survey respondents asked to identify his favourable traits chose “active and aggressive” - whereas the traits the fewest Chileans attributed to their president were “credible and trustworthy.”

This may reflect the negative campaign of Concertación presidential candidate Eduardo Frei, which highlighted the low points of Piñera’s business career. Piñero was fined approximately US $680,000 for the equivalent of insider trading in 2007, following a purchase of Lan Airlines stock. He was cleared of charges of violating the country’s banking laws following the 1982 government seizure of the insolvent Banco de Talca, where he was general manager. On the whole, however, Piñeras’ story has been one of smart investments and effective management, which allowed him to rise from the position of  bank manager to one of Chile’s wealthiest citizens in less than three decades.

During the campaign, Frei warned voters that Piñera would govern for the rich. Yet many Chileans felt that Concertación was already doing that. The coalition expanded an export-based economy that had been a priority of the Pinochet government and oversaw economic growth that averaged 5.1% per year. During Concertación’s two decades in power, the percentage of Chileans living in poverty decreased from nearly 40% to less than 14%, but the country also gained hundreds of new millionaires and on the whole, its rich got considerably richer.

Piñera campaigned on promises to boost economic growth and improve conditions for the middle class: he recruited ministers from the business world to help him do so. But the president’s reluctance to sell some of his assets, the circumstances surrounding his final sale of Lan Airlines stock, and the varied business connections of his ministers have left some Chileans wondering exactly who will benefit from his administration’s promised dynamism.

When he was elected, Piñera owned approximately 26% of Lan, one of South America’s top airlines, which he sold in several packages in February and March. Between his January 17 election and the sale of his last 8% of Lan on March 24, the airline’s stock value increased by 12%. Observers noted that Piñera’s decision to sell Axxion, the holding company that owned his last portion of Lan stock, rather than selling the stock itself, allowed him to pay lower taxes on the sale. In total, he earned almost US $1.5 billion from the sale of his Lan stock, which he has complemented with sales of stock in various other companies, so he won’t need to fret about how to support his family on his $178,000 presidential salary.

Concertación politicians denounced the Axxion sale outright – legislator Jorge Burgos claiming that Piñera may have avoided paying as much as $50,000 in taxes on the deal – and called upon the recently appointed internal revenue chief to testify in congress. Coalition for Change legislators responded by launching an investigation into the Bachelet administration’s transfer of approximately US $3 billion of government funds to NGOs during its last three months in office, which administration representatives claimed was largely destined for the construction of housing for disaster victims. So the post-quake political truce has lasted less than a month.

Another point of contention was Piñera’s decision to create a foundation to manage his television station, Chilevision, rather than selling the business. Critics noted that the issue is rife with conflicts of interest, since Piñera has appointed the director of the public television network, TVN, a direct competitor of Chilevision, and the country’s congress is debating a law to regulate digital television. Politicians on the left and right called upon Piñera to sell Chilevision: but so far the president has resisted the pressure.

According to Raul Sohr, a political analyst for Chilevision and La Nación newspaper, Piñera has drawn fire for conflict of interest ever since he flew to Colombia as a candidate for a meeting with President Alvaro Uribe, and returned with an agreement for Lan Airlines to transport cargo between the two countries. “It wasn’t clear when Piñera was acting as politician and when he was acting as a businessman,” he said.

Sohr noted that various new ministers have similar conflicts of interest, since they have worked for, or own parts of major Chilean corporations. He cited the example of Health Minister Jaime Mañalich, the former medical director of the prestigious Clínica las Condes. Piñera owned nearly 10% of this stock before he sold it for approximately US $36 million during his first week in office. Sohr predicted that Concertación will keep the entire administration “under the microscope” during the next four years.

In an interview with the Argentine newspaper El Clarín, Piñera said, “In life, one is always dealing with conflicts of interest; only the dead and saints are free from this situation. The important thing is knowing how to resolve them well.”

The comment provoked more criticism from the left, but it was followed by news that the administration would post the declarations of assets that the president, ministers and other high level officials are required by law to complete on the Internet.

Nevertheless, despite the daily coverage of the controversy, Sohr claimed that the average Chilean pays it scant attention. “These aren’t issues that agitate the masses,” he said.

Reconstruction first

The public and media may lose interest in Piñera’s stock sales, but his handling of disaster reconstruction could be more decisive for his political future. The February 27 earthquake and tsunamis destroyed or severely damaged approximately 370,000 homes, 4,000 schools and 79 hospitals, as well as highways, ports and other infrastructure. Political scientist and columnist Patricio Navia predicted that Piñera will face a storm of criticism if his administration hasn’t provided adequate shelter for disaster victims by the time the winter rains begin in May.

“He is not going to have any honeymoon, that’s clear. On the other hand, he now has a clear agenda,” Navia observed on the eve of Piñera’s inauguration. “He is going to have to deliver, or face the consequences.”

Piñera has called reconstruction “the greatest challenge of my life” and assured the Chilean public that it is his top priority. He spent his first weeks in office reviewing reconstruction plans and deciding how to finance the task. He has visited the disaster area frequently and on his second trip abroad as president, stopped in New Orleans to learn about that city’s recovery from Hurricane Katrina.

Luckily for Chile and Piñera, the state is in a good position to cover the cost of reconstruction. The government has more than $10 billion in savings – mostly revenue from the national copper mine – and the country’s economy is predicted to grow about five percent this year. The total cost of repairing quake and tsunami damage is estimated at US $30 billion, less than US $7 billion of which will be covered by insurance companies. Piñera has consequently proposed the creation of a reconstruction fund with government savings, the issuance of a government bond, the sale of minor state assets and a tax increase on corporate profits.

Sohr noted that prominent members of the right have advised Piñera against raising taxes, which Concertación never did during its two decades in power. “It may not be much of an increase and it may be temporary, but it is notable that he is doing it. It is a big step, and it’s ironic considering that Concertación was never able to do it.”

Sociologist Lucia Dammert, of the Latin American Social Sciences Institute (FLACSO), said that the disaster has forced Piñera to change, or scale back much of his original agenda. She noted that predictions that the new administration would fire a large number of government officials had proven false, which may be due to the need to ensure an efficient disaster response.

“Before the earthquake, Piñeras’ proposal was the typical platform of the right – that of a smaller government and greater private investment, but now it is clear that there are parts of the country that need more government, or at least a more efficient government,” she said.

Piñera, who ran on a platform of change, will now need to expand a housing program that was a hallmark of the Bachelet administration, which helped approximately 450,000 poor families get their first home. As a candidate, Piñera echoed criticism that the program had produced low-quality houses and vowed to improve it. But Dammert said the need to replace more than 300,000 homes quickly could make that a hard promise keep.

“I believe that this government, which is in reconstruction mode, will be able to make few and rather limited changes,” Dammert said.

Political futures

Many on the left criticized Piñera’s decision to appoint a cabinet of business executives and technocrats, yet the Adimark poll found that Chileans gave the new administration a higher approval rating (60%) than the president (52%). This was a switch from previous surveys in which President Bachelet was consistently rated more highly than her government.

Most of Piñera’s ministers are unknown to the general public, so the poll may reflect ambivalence toward the president, or it could indicate approval of his promise to abandon the Concertación practice of dividing political appointments among the coalition’s various parties. Most of Piñera’s ministers have no strong party affiliation, and his Minister of Defense, Jaime Ravinet, is a Christian Democrat who served in a Concertación government, which has calmed fears that Piñera would favor military officials from the Pinochet regime.

Less than a quarter of Piñera’s cabinet is from the Independent Democratic Union, or UDI – the Coalition for Change’s larger right wing and the party with the most legislators in congress. Navia noted that Piñera’s neglect of the UDI could hurt him in the long run, because he may need the party’s support if his popularity slips. Sohr disagreed, claiming that Piñera’s goal is to create an alliance with the political center, so he will be more responsive to public opinion than to pressure from the UDI.

“Piñera’s success is that he was capable of breaking Chile’s political mold, because he is a cross-cutting figure – his roots are in the Christian Democrat Party, but he has become a leader of the right,” said Sohr, who claimed that Piñera knows that the only way he can maintain a viable political base is by governing for the center.

If he resolves his conflicts of interest in a timely manner and delivers on reconstruction, Piñera may be able to redraw Chile’s political map. If he doesn’t, he can count on Concertación doing everything possible to make him the earthquake’s last victim.

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