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Chile’s Gabriel Boric Sworn-In, Faces Major Economic and Political Challenges

The 36-year-old president’s government inherits an economy in slowdown, high inflation and uncertainty concerning the new constitution

Gabriel Boric, Chile's president-elect, speaks during an election night rally in Santiago, Chile, on Sunday, Dec. 19, 2021. Leftist Boric was elected president of Chile on Sunday vowing higher taxes, greener industries and greater equality, after tapping into discontent over an investor-friendly economy that has left many behind. Photographer: Cristobal Olivares/Bloomberg
By Maolis Castro (EN) and Adam Critchley
March 11, 2022 | 02:00 pm

Santiago — Gabriel Boric was sworn-in as Chile’s president on Friday, in a ceremony held at noon at the Congress of the central region of Valparaíso, amid expectations for his campaign promises to transform the country.

The arrival of the 36-year-old former student leader and legislator to the Chilean presidency is regarded as the beginning of a new political era in Chile, as he breaks away from the era of former presidents Michelle Bachelet and Sebastián Piñera, dating back to 2006, and promises to put an end to the model imposed by his predecessors.

The youngest president in Chilean history, and the most voted for in a presidential election, his arrival to La Moneda presidential palace marks the entry into power of a new generation and a new political bloc, the left-wing Frente Amplio (Broad Front) coalition, which was founded in 2017. The coalition stands out for its progressive approach and as an alternative to the traditional parties of the Chilean center-left.

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As its main allies it will have the Communist Party, with Camila Vallejo, Boric’s minister spokesperson, hailing from that party’s ranks.

Boric presented his cabinet in January, and which is majority female, with 14 of the 24 posts occupied by women, including Maya Fernández, a granddaughter of former president Salvador Allende, as defense minister, and which also includes former student leaders and figures from across the political spectrum. He calmed market fears by naming Mario Marcel as finance minister, who is a former governor of the central bank

Read More: Chile’s Boric Will Face Opposition from Both Right and Left

However, Boric takes office at a time when the country is seeing economic slowdown, high inflation, and is in the middle of discussions toward drawing up a new constitution to replace the current one that dates back to the 1973-1990 Augusto Pinochet dictatorship. The new document is currently being discussed by the Constitutional, a plural assembly of citizens from across the political divide.

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Boric is the first leftist president of Chile who does not belong to one of the country’s traditional parties, and he triumphed after promising profound transformation, especially in the country’s economic model.

But the fulfillment of his campaign promises will depend on overcoming certain obstacles.

Mireya Dávila, an academic at the Institute of Public Affairs of the University of Chile, told Bloomberg Línea that, at the political level, the new government must translate the commitments and expectations of citizens into public policies; lead its coalition both as a government and in Congress, where it does not have a majority; establish agreements with the opposition; support the Convention until the end of its work, and the electoral authorities in the plebiscite to be held on the resulting draft constitution.

Boric is aware that great challenges await him during his government, which will be in office until 2026.

“We have a tremendous challenge on our hands, but facing it as a team, collaborating, listening to each other and understanding diversity as a strength, we can achieve it,” Boric said when presenting his cabinet in January.

Gabriel Boric, Chile's new president, presenting his cabinet in January. dfd

Boric has shown himself to be open to dialogue, which cooled the tensions following his win in last year’s presidential elections.

But it is perhaps the market that will be watching his steps with the greatest interest, and great expectations will fall on Mario Marcel.

Over the coming months, at least three issues will play a fundamental role on the behavior of Chilean assets: the political dynamic, the economic slowdown, and the rise in commodity prices, according to a report by Credicorp Capital.

Read More: What Happens in Chile Doesn’t Stay in Chile: Will the ‘Boric Effect’ Spread Across LatAm?

Economic Slowdown and High Inflation: A Dangerous Cocktail

The Chilean economy contracted by 5.8% during 2020 due to pandemic-related constraints. It was the worst record in four decades, although the economy managed a recovery of close to 12% in 2021 as a result of greater adaptation and the relaxation of measures to contain the spread of Covid-19 that spurred an economic reactivation. However, the biggest boost emanated from consumption, generated by higher household incomes.

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But that positive streak is beginning to fade and the Chilean economy is already starting to show signs of slowing down. This, at least, was evidenced by the monthly index of economic activity (Imacec) for January, which registered a variation of 9%, the lowest since March 2021.

Growth prospects are low, with an estimated annual GDP increase of between 1.5% and 2.5% for 2022 and 2023, similar to that recorded between 2014 and 2019.

Likewise, inflationary pressures will continue during the coming months. The consumer price index posted an annual increase of 7.8% in February, doubling the Central Bank’s target, and the sharpest rise since 2014. The index is expected to reach 5.8% by the end of the year, but the scenario could worsen due to the effect of the war between Russia and Ukraine and its effect on commodity prices and the global supply chain.

This cocktail of factors will be the economic headache for Boric, who will have to moderate fiscal spending as one of his many challenges, despite his inclination to increase it in order to fulfill electoral promises, while expectations will weight on Marcel to curb possible political pressures that could lead to an increase in public spending.

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According to Dávila, Boric will have to implement a combination of policies that respond to pragmatic proposals and, at the same time, maintain the country’s financial and economic stability; address tax and pension reform; generate the conditions to reduce unemployment; and couple all of the above with the challenge of moving toward a greener economy.

Read More: Chile’s New Constitution ‘Will Bring Certainty to Investors’

Constitutional Convention: A Focus of Uncertainty

In his last televised address as President of Chile, Sebastián Piñera expressed his concern for the “excessive re-foundational and identity-based eagerness of broad sectors of the Constitutional Convention”, following the tabling of a series of controversial proposals, such as nationalization of mining and environmental regulations that would hinder further mining development.

Some of the institution’s radical proposals provoked fears in several sectors, including the market which, according to analysts, could remain highly volatile until the process is concluded on July 4. The new president will probably have to calm the waters within the Convention, building bridges, and thus bring to a successful conclusion the drafting of the Constitution that will be submitted to a plebiscite, probably in September.

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However, many of the more radical initiatives proposed have been discarded in the convention’s voting rounds. Initiatives are discarded if they obtain very few votes, or are returned to commissions to be modified and voted on again.

Read More: Chile Can’t Afford a Swerve Into Radicalism

An Opposition Congress

To achieve major reforms, Boric will have to go through Congress, where he does not have a majority. But perhaps the biggest headache will be in the Senate, 50% of which is made up of right-wing legislators, an Boric’s ability to negotiate and reach broad political agreements will be decisive in order to be able to move forward with his projects.

He will also have to keep his political coalition, made up by the Frente Amplio and the Communist Party, and his allies of the center-left united.

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Crises in Chile’s North and South

Boric also takes office as two social crises are taking place in the country’s north and south. In the north, the entry of migrants through clandestine border crossings has provoked the annoyance of Chileans in the border areas with Bolivia, and also of regional authorities, which are being accused of a lack of governance.

Another dramatic situation is taking place in the country’s south, where violence has left dozens of victims in a conflict between Indigenous Mapuches and agricultural companies. To control both situations, the Piñera administration decreed a ‘state of constitutional exception’, a toned-down term for a state of emergency, but which the incoming federal administration has said it will not renew.

Translated from the Spanish by Adam Critchley

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