By Raul Ferro
Michelle Bachelet, Chiles
new president, is determined to pursue a more egalitarian
Shortly before assuming office on March 11, Michelle Bachelet
presented each prospective minister in her cabinet with a
thick dossier detailing the prognosis for their respective
portfolios, as well as the targets for their first 100 days
The unifying theme: to wipe out the widespread inequality
that still goads Chilean society, despite two decades of
ostensible economic success.
Chiles first woman president had wasted no time in
stamping her mark on her new government and in laying
out its responsibilities.
Andres Velasco, Bachelets new finance minister and
previous campaign adviser on economic issues, was quick to
reassert the urgency of his bosss goals. We will
create a social protection network spanning from birth to old
age, he announced at his first press conference on
The first stage of the plan, to be implemented within three
months, will grant universal access pre-school education and
will increase the minimum pension. The reforms will cost $6
billion over four years, and will be financed through
the countrys economic growth, Velasco says.
The plan then envisages increasing funding for education
while also improving labour market access for women and the
young, although Velasco has yet to elaborate the specifics of
the second stage.
The reform package in many ways sets the tenor for
Bachelets economic policy which, according to analysts,
is otherwise largely similar to that of her predecessor,
Ricardo Lagos. The Chilean economy grew by around 6% in 2005
and is expected to grow by 5.5% this year.
Free but fair
Velascos policies will be focused on fighting
inequality, says Patricio Navia, professor at the
Center for Latin American and Caribbean Studies, New York
University and member of Expansiva, the think-tank that until
now Velasco headed and that advised Bachelet on her
I would define Velasco as pro-market more than
pro-business, said Navia. That means that, while
maintaining sound macroeconomic fundamentals, he will promote
reforms to increase competition in the Chilean market.
John Edmunds, research director at the Institute for Latin
America Business Studies at Babson College in Massachusetts,
agrees that Velasco will favour a more egalitarian system.
The decision to increase the minimum pension by $30
[per capita] is a clear sign of that, Edmunds
Could that be a sign of populism? Not at all,
says Edmunds. The current strong surplus in the fiscal
accounts gives the government enough room to do this. The
Chilean government coalition has a record of better fiscal
management than the Bush government.
Velasco, an Ivy-league trained academic, is not only highly
regarded in international economic circles. In recent years
much of his research has focused on the economic return of
social investment a subject that fits well with the
emphasis he wants to give his economic policies.
This focus on the domestic market will balance Chiles
economic strategy so far, says Navia. Chile is like an
airplane flying on only one turbine: exports, he said.
Velasco wants to facilitate the natural development of
the domestic market, not only as a matter of social justice,
but also because it makes economic sense.
Bachelets flagship economic reform, however, will be
overhauling the existing pension system, which itself has
inspired pension reforms in several countries. The reform,
expected in the coming months, is not aimed at changing the
model of individual capitalization but rather at expanding
its coverage, to cut back administration costs and develop
models to improve the lot of women and the poor.
Bachelet has appointed an ad hoc commission, including
members of all political stripes, to look into further
reforms to the system. The plan is unlikely to have any
impact on capital markets and should only affect the business
model of the pension funds administrators (AFPs).
The reform will probably increase the role of the state
in the system, maybe through the creation of a state-owned
AFP and by allowing banks to take part in the business,
says Navia. The current system is good for people with
medium to high levels of income, but not for the people that
earn low salaries, Edmunds says.