Chile’s Bachelet Channels Social Tensions in Bid for Presidency

In a race with an unusual back story, the Social Democratic candidate seeks to return to power by focusing on inequality.


Since Chile restored democracy, every presidential election has had a delicate subtext: Where did the candidates stand on the 16-year dictatorship of General Augusto Pinochet, and would their election strengthen the country’s democratic institutions? Never have those questions been as vivid, and personal, as they are today.

On the left, the candidate in this November’s presidential election is former President Michelle Bachelet. Her father, Air Force General Alberto Bachelet, was arrested for failing to support Pinochet’s 1973 coup and died after months of torture at the hands of the military. On the right is former senator Evelyn Matthei. Her father, General Fernando Matthei, was commander of the Air Force Academy where General Bachelet, his former mentor and one-time friend, was tortured.

“Evelyn’s father used to be very close to my father,” says Bachelet in an interview with Institutional Investor. “And I’ve seen a lot of Evelyn in Congress since Chile returned to democracy in 1990 — although of course we have always been on the opposite side of almost every issue. But this election isn’t personal. It’s about two very different visions for Chile.”

In Bachelet’s view, Chile’s fast-growing economy has favored mostly the affluent. She believes government policies must focus on extending economic opportunity and social benefits to the middle class and the poor. Matthei contends that economic growth will trickle down, mainly through higher employment rates and rising wages. She promises a continuation of the conservative, free-market policies of President Sebastián Piñera, whom she served under as Labor minister.

Those policies have delivered impressive results. Since Piñera took office in 2010, Chile’s economy has grown by 5.5 percent a year, up from 3.3 percent under Bachelet’s presidency during the previous four years. Average annual incomes have risen to $19,000 on a purchasing-power-parity basis, and unemployment stands at just 6 percent; on both measures, Chile outperforms every Latin American country.

Yet increasingly, many Chileans feel left behind by the rising tide. Piñera’s popularity rating is the lowest for any president since the restoration of democracy. Polls indicate that many Chileans find the self-made billionaire too abrasive and business oriented. “At this point, equitable distribution has become more important than overall economic growth,” says Patricio Navia, a professor at New York University’s Center for Latin American and Caribbean Studies.

There is also concern that the tide may be turning, given the recent decline in commodity prices. “Much of Chile’s growth has been linked to the global boom in natural resources — especially copper, but also forestry, fisheries, fruit and wine.” says Andres Velasco, who was Finance minister in Bachelet’s first presidency “Now we have to find different engines of economic growth.”

Piñera’s center-right Coalition for Change has struggled to find a standard bearer. The initial front-runner, Laurence Golborne, a former minister of Public Works in the Piñera cabinet, was given the best chance against Bachelet, but he abandoned his candidacy in April after revelations surfaced that he held a secret bank account abroad. Piñera’s former Economics minister, Pablo Longueira, then stepped forward, only to quit the race suddenly in July, saying he was suffering from clinical depression. Matthei then entered the race, although her right-wing views, familial links to the Pinochet regime and haughty image make it unlikely she can close the gap with the ever-popular Bachelet.

In the three weeks since declaring her candidacy, Matthei has tried to sound more centrist. In a recent Chilean television interview, she said she did not oppose increased taxes for the wealthy, though “tax reform should never be a goal, but rather an instrument.” She also favors a long-term program to upgrade the technical skills of Chilean workers. As for the death of General Bachelet, she asserted that “we all should feel remorse for what happened to him.”

Opinion surveys give former President Bachelet the support of more than half the electorate, a daunting lead in a field of nine candidates. A Bachelet victory is such a foregone conclusion that media interest has focused more on the likely size of her congressional majority. According to the polls, her coalition will get 65 to 70 seats in the 120-member Chamber of Deputies and 20 to 23 seats in the 38-member Senate. At every campaign stop, she urges supporters to vote for her slate of legislative candidates.

On a recent late August day, with the Chilean winter softening into spring, Bachelet plunged through adoring crowds in Quinta Normal, a lower-middle class neighborhood of mom-and-pop shops and secondhand furniture stores in Santiago, the capital. Among the spectators were the so-called Bachelets — local women who cut and tint their hair blond, like Michelle, and dress in the same pants suits and colorful blouses. Bachelet spoke with the high-pitched lilting voice favored by the poor and middle class, and sprinkled her messages with their slang — pega for jobs or gallo for guy.

Later, at her headquarters in a cavernous former hat factory in the central neighborhood of Providencia, Bachelet sat down for a 40-minute interview about her priorities for another four-year presidency, which would begin next March.

Bachelet sounds vague on how she intends to make up for falling commodity revenues. She speaks of improving labor productivity through better education and ending energy shortages through more investments in solar, wind and hydroelectric power. “We have to diversify our economy away from natural resources and add more value to Chilean products,” she says.

She also vows that even if the economy slows, she will not be deterred from her goal to reduce the social and economic gap in the country. “Of course, we need to grow,” says Bachelet. “But we have to reduce the inequalities that are holding back more growth.”

Rising social tensions in Chile have sparked a good deal of debate over the so-called middle-income trap. Back in the 1960s many Latin countries seemed on the verge of joining the industrial world, only to fall back because their governments tried to accommodate rising populist demands for more economic benefits. “I’m keeping my fingers crossed that Bachelet will achieve more than 3 percent growth,” says Sergio Olavarrieta, director of the University of Chile’s School of Economics and Management. “But it could be lower because the new government can’t put a brake on social demands that began under Piñera.”

Other emerging-markets countries have experienced social explosions over the past year. In Brazil protests over rising public transportation costs erupted into demands for an end to political corruption and more spending on health and education. In Turkey demonstrations against plans to build a mosque and shopping mall over the site of a central Istanbul park morphed into much larger protests by secular Turks against the growing authoritarianism and pro-Islamic social policies of Prime Minister Recep Tayyip Erdogan. In South Africa the brutal repression of striking miners has aroused widespread anger at income inequalities and presented the ruling African National Congress Party with its greatest crisis since the end of apartheid in 1991.

In Chile social unrest began two years ago with massive protests by students over the high costs of universities. Bachelet has promised free university education and intends to pay for it through a rise in corporate taxes to 25 percent from the current 20 percent. “Even an upper-middle-class family that wants to send three kids to university cannot possibly afford to do so now,” she says.

Yet another thorny issue that Bachelet aims to tackle is discontent with private pension fund managers, the Administradores de Fondos de Pensiones, or AFPs. Launched in 1980 under Pinochet to replace the country’s bankrupt, state-run social security system, the AFP model was widely imitated in Latin America and Central Europe.

More recently, a number of these countries have gone back on their commitments. Eager to replenish government coffers, Argentina nationalized its private pension funds in 2008. Hungary followed suit in 2010. This year, Poland announced it would downsize its private pension fund system to help curb public debts incurred in its implementation.

Chile’s AFPs, which hold assets of $169 billion, have been a boon to the local capital market, but their high commissions and low pension payments to retirees have stoked public ire. “I intend to set up a state pension fund that will compete with the AFPs and hopefully force them to lower their fees,” says Bachelet.

In her first term Bachelet proved to be pragmatic and let her Finance minister, Velasco, play the grinch by beating back left-wing demands for more social benefits financed by the country’s swelling copper revenues. But a landslide second-term victory could spark more investor concern. “It will be easier for Bachelet to win the election than to govern,” predicts Navia, the political analyst.

Others think pragmatism will prevail again. “The candidates mentioned for Bachelet’s economic team understand and support the market economy,” says Olavarrieta, the economist. They include José de Gregorio, who served as president of Banco Central de Chile from 2007 to 2011, and Guillermo Larraín, who headed the Superintendencia de Valores y Seguros, the Chilean equivalent of the Securities and Exchange Commission, during Bachelet’s previous term. And waiting in the wings should the economy head south is Velasco.