CHILE'S NEW LEADER FACES ECONOMIC HURDLES
19 enero 2010
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Published by The Wall Street Journal, US
Santiago, Chile—Sebastián Piñera, Chile's president-elect, has promised to apply the entrepreneurial skill that made him a billionaire to reinvigorating the national 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 Sunday's election with 51.6% of the vote, compared with 48.4% for Eduardo Frei, an ex-president who was the candidate of the center-left Concertación coalition that has governed Chile for two decades since the end of the dictatorship of Augusto Pinochet. With holdings in Chile's major airline, a television station and a soccer club, Mr. Piñera may well be the wealthiest man ever elected president of a Latin American nation.
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 the Pinochet regime. The Concertación 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 boost Chile's flagging productivity and to oversee an increase in the investment rate to 28% of gross domestic product by the end of his term in 2014 from the current 23%. He proposes a revamp of capital markets to make it easier for businesses to obtain funding, as well as tax incentives to encourage reinvesting profits.
The president-elect says he will create a National Office of Innovation and Entrepreneurship 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 a fraction of what it does in Chile.
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—enough money to build 160,000 homes.
But some of Mr. Piñera's proposed remedies could face political hurdles, as Mr. Piñera will need to work with the Concertación to get his measures through a divided Congress, according to a report by Santander Investment. Mr. Piñera has said he would like to divest as much as 20% of the giant state-owned copper company, Codelco, either by floating shares or selling a stake to pension funds. Both the Concertación and mining workers unions have resisted the notion. Likewise, the left has been cool to his idea of amending labor legislation to reduce the cost of firing workers. Mr. Piñera maintains such costs discourage companies from hiring.
Some development specialists say Chile faces broader challenges that may resist quick fixes. Harvard University economist Ricardo Hausmann says Chile has been slow to develop new export industries to complement the resource-based ones that keyed its growth in the 1980s and 1990s, such as salmon, fruit and copper. "Chile is like California without Silicon Valley and without Hollywood," he says. Mr. Hausmann says that is partly due to the limitations of Chile's business class, which tends to be a closed, conservative circle.
All of that is why some analysts are keeping 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 unfavorable global backdrop, will disappoint the new president's more optimistic forecasts," notes a report by Capital Economics Ltd. of London.
Santiago, Chile—Sebastián Piñera, Chile's president-elect, has promised to apply the entrepreneurial skill that made him a billionaire to reinvigorating the national 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 Sunday's election with 51.6% of the vote, compared with 48.4% for Eduardo Frei, an ex-president who was the candidate of the center-left Concertación coalition that has governed Chile for two decades since the end of the dictatorship of Augusto Pinochet. With holdings in Chile's major airline, a television station and a soccer club, Mr. Piñera may well be the wealthiest man ever elected president of a Latin American nation.
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 the Pinochet regime. The Concertación 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 boost Chile's flagging productivity and to oversee an increase in the investment rate to 28% of gross domestic product by the end of his term in 2014 from the current 23%. He proposes a revamp of capital markets to make it easier for businesses to obtain funding, as well as tax incentives to encourage reinvesting profits.
The president-elect says he will create a National Office of Innovation and Entrepreneurship 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 a fraction of what it does in Chile.
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—enough money to build 160,000 homes.
But some of Mr. Piñera's proposed remedies could face political hurdles, as Mr. Piñera will need to work with the Concertación to get his measures through a divided Congress, according to a report by Santander Investment. Mr. Piñera has said he would like to divest as much as 20% of the giant state-owned copper company, Codelco, either by floating shares or selling a stake to pension funds. Both the Concertación and mining workers unions have resisted the notion. Likewise, the left has been cool to his idea of amending labor legislation to reduce the cost of firing workers. Mr. Piñera maintains such costs discourage companies from hiring.
Some development specialists say Chile faces broader challenges that may resist quick fixes. Harvard University economist Ricardo Hausmann says Chile has been slow to develop new export industries to complement the resource-based ones that keyed its growth in the 1980s and 1990s, such as salmon, fruit and copper. "Chile is like California without Silicon Valley and without Hollywood," he says. Mr. Hausmann says that is partly due to the limitations of Chile's business class, which tends to be a closed, conservative circle.
All of that is why some analysts are keeping 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 unfavorable global backdrop, will disappoint the new president's more optimistic forecasts," notes a report by Capital Economics Ltd. of London.
