Riots, Scandals and Algal Blooms: A difficult 2016 so far for Chile.

For a country that, since its return to democracy in 1990, has been comparatively used to stability, the first half of 2016 has been a rocky one for Chile.  An upsurge of popular discontent with the pace of promised reforms and a prominent establishment corruption scandal – topped off with a liberal dollop of natural disaster – have taken their toll on national optimism and hopes of an economic uplift.  This week, the Chilean Central Bank gazed gloomily into its crystal ball and reported that growth may not be as strong as predicted, with unemployment set to surpass 7% by the end of the year.

This time last year, when faced with a similar raft of crises – a sluggish economy hindered by falling commodity prices and allegations of influence peddling among her inner circle – incumbent president Michelle Bachelet took radical action, axing senior ministers and reshuffling the cabinet in an effort to inject life and credibility into her government. But just over 12 months on, she cannot play that card again without looking capricious.

Few events so far this year in Chile are more symptomatic of the nation’s malaise than the student riots that have spilled out onto the streets of major cities including Santiago and Valparaíso.  As part of her presidential campaign in 2013, Ms. Bachelet stood on a ticket of wide-ranging social reform, a key pillar of which was a promise to break up the private sector stranglehold on education and make university tuition free of charge. Young voters were duly wooed in their thousands, but now find themselves frustrated as slowing economic activity and declining tax takes have left the government’s hands tied on offering educational subsidies.

To compound the problem, the attention of Ms. Bachelet’s administration has been diverted from its reformist agenda by the need to manage a series of crises. Foremost among these is the “Red Tide”, a bloom of toxic algae that has devastated Chile’s lucrative fish-farming industry, knocking out 15% of the nation’s aquaculture. A sharp rise in sea temperatures after a particularly strong El Niño – combined with a lax approach to regulating the intensive farming methods employed by the sector – is the most likely the root cause, but the upshot is an $800 million hole from lost production and 17 days of strikes from disgruntled fishermen unable to earn a living. Farming is only just getting back underway after months of hiatus, but the economic damage is already done and precious government time and resources have been spent combatting the crisis.

But the mounds of seafood festering along 2000km Chile’s southern coast are not the only thing that smells fishy. Closer to home for the President are allegations that, during her 2013 presidential campaign, her son, Sebastián Dávalos, used his political influence to secure a $10 million loan from Banco de Chile for his wife’s land speculation company, Caval Ltd. An investigation and trial into the “Caval Scandal” are (still) ongoing, but the episode taps into a broad resentment in Chile towards members of the country’s elite and reinforces the widely-held belief that they benefit unduly from their position.

Potentially even more damaging is the latest by-product of the scandal – the legal suit brought by Ms. Bachelet against the magazine Qué Pasa. Back in early 2015, the Santiago-based weekly broke the Caval story and more recently, its journalists have uncovered phone transcripts that allegedly show Ms. Bachelet directly benefited from the wheeze. The President contests the accusations and is now suing for damages, with the magazine hitting back with the inevitable argument that printing the story was very much in the interests of the Chilean public and the pursuit of free speech in general.

Irrespective of the rights and wrongs of the case – and the ultimate legal outcome – the overall result is at best likely to be a Pyrrhic win for Bachelet. During her two presidencies, a large chunk of her popularity has stemmed from her “common touch” and ability to harness the popular press: Engaging in lengthy legal wrangles with a widely-read magazine like Qué Pasa is unlikely to strengthen those vital media relationships, particularly when 74% of Chileans aren’t fully on-board with her side of the story.

Securing public approval is, of course, not top of Ms. Bachelet’s to-do list. The fact that she is constitutionally barred from seeking another term in elections next year releases her from the politician’s obligation to constantly court voters. It matters not a jot that barely a fifth of the electorate now endorse her mandate. What now matters most in the final year of her premiership is the concern of all outgoing presidents: securing the legacy. Chileans will be hoping that she can pull rabbits out of fiscal hats and deliver that reformist manifesto they were promised.

Or, failing that, that at least the national team can raise spirits by delivering the goods on the football pitch and defending their Copa América title.


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