Monday, January 18, 2010
Piñera Faces Tough Task in Chile
By MATT MOFFETT
SANTIAGO, Chile—Sebastian Piñera, Chile's president-elect, has promised to apply the entrepreneurial skill that made him a billionaire to reinvigorating Chile's economy. Mr. Piñera maintains that by cutting red tape, enhancing investment incentives and administering the public sector more efficiently, he will steer Chile to a growth rate averaging 6% annually during his term, roughly twice the rate of the past decade.
But independent economists say that with a divided Congress, along with inherent structural limitations in this small, commodity-dependent economy, he may be hard-pressed to deliver on that goal.
Mr. Piñera won election Sunday with 51.6% of the vote, compared with 48.4% for Eduardo Frei, a former president who was the candidate of the center-left Concertacion coalition that has governed Chile since 1990. Mr. Piñera will be Chile's first conservative president since the end of the dictatorship of Augusto Pinochet in 1990. With holdings in Chile's major airline, a television station and a football club, he may well be the wealthiest man ever elected president of a Latin American country.
Mr. Piñera, 60 years old, has said he will be "an entrepreneurial president," focused on the Chilean economy, which became a laboratory for free-market policies like privatization under Pinochet regime. The Concertacion governments maintained the pro-market framework, while building up the social safety net. Yet, Mr. Piñera blames complacency within the Concertacion for the decline in Chile's growth rate over the past decade to about half the level of the decade before.
Mr. Piñera has pledged to increase the investment rate to 28% of GDP by the end of his term in 2014 from the current 23% and to boost Chile's flagging productivity. He proposes a revamp of capital markets to make it easier for businesses to obtain funding, as well as tax incentives to encourage the reinvestment of profits.
The president-elect says he will create a National Office of Innovation and Entreprenurialism to slash red tape. Mr. Piñera cites a World Bank study noting that opening a business in Chile takes 27 days and costs $1,100 while in New Zealand it takes one day and costs $26.
Finally, Mr. Piñera has pledged to bring greater efficiency to public administration. Mr. Piñera maintains that due to mismanagement of state entities involved in transportation, energy and copper mining, Chile has wasted $4 billion dollars—enough money to build 160,000 houses.
But some of Mr. Piñera's proposed remedies could face political hurdles, with Congress divided and Mr. Piñera likely dependent on support from at least some Concertacion legislators. He has said he'd like to divest up to 20% of the state-owned copper company Codelco, either by floating shares or selling a stake to pension funds. Both the Concertacion and mining workers unions have resisted the notion. Likewise, the left has been cool to his ideas about revamping the labor law to reduce the cost of firing workers.
That's why some analysts are trying to keep their expectations in check. "All told, we think that annual growth during Piñera's presidency is more likely to average 4%, which while still impressive given the unfavourable global backdrop, will disappoint the new President's more optimistic forecasts," notes a report by Capital Economics Ltd. of London.