Latin America Advisor

A Daily Publication of The Dialogue

What Should Chile Expect From Its New President?

Gabriel Boric, 36, is set to become the youngest president in Chile’s modern history when he is sworn in today. // File Photo: Facebook Page of Gabriel Boric. Gabriel Boric, 36, is set to become the youngest president in Chile’s modern history when he is sworn in today. // File Photo: Facebook Page of Gabriel Boric.

Gabriel Boric takes office today as president of Chile. The 36-year-old and his diverse cabinet are likely to face a myriad of challenges—from shoring up security and immigration, to tax reform and boosting health care and education—all this while the country attempts to rewrite its dictatorship-era constitution. What issues are most pressing, and what should Boric’s top priorities be as he assumes the presidency? Can Chile’s new president forge a path of economic growth while keeping his election promises of greater wealth distribution? How did the markets and investors react to his election last year, and what is the outlook for Chile’s business environment?

Michael Shifter, president of the Inter-American Dialogue: “The new Chilean government led by 36-year-old Gabriel Boric has drawn keen interest in the United States, Europe and across Latin America. Will a new generation of political leadership be able to combine socially progressive policies with economic growth and fiscal discipline—all within a democratic framework that respects the rule of law? Possibly, but it won’t be easy. The relatively untested president and his diverse team will face many significant challenges. Boric will need to maintain support of his political base, the young, more radical forces demanding to redress acute inequalities. They will press for fundamental reforms in pensions, education and health, a more inclusive and greener economy and increased taxes on the wealthy. Expectations are high, but enacting these measures will be tricky. Congress is divided, and Boric will have to forge alliances and make deals. At the same time, he will need to gain the confidence of the private sector. His selection of respected former central bank president Mario Marcel as finance minister was reassuring, though many in the business community remain skeptical and have a ‘wait and see’ attitude. Apart from a fragmented and challenging political landscape, Chile’s economy is slowing, and inflation and unemployment are rising. The eventual content of a new constitution also poses risks for the incoming administration. Some of the ideas gaining ground in the convention regarding the judiciary, regional powers, the central bank and the proliferation of social rights could discourage investment and put Boric himself in a difficult bind.”

Jorge Heine, research professor at the Pardee School of Global Studies at Boston University and former Chilean cabinet minister: “Chile’s new government has a remarkable opportunity to set the country on a new course and get rid of the malaise that has affected it lately. To do so, it must distinguish between urgent and important issues. Among the former are those related to law and order, and matters like burgeoning inflation and economic reactivation. Among the latter are those related to pension and health reform (revealingly, among the least trusted institutions in Chile are the AFPs—private pension companies, and Isapres—private health insurers). The high price of copper this year should provide a welcome influx of hard currency and fiscal income. For a new ruling coalition largely without government experience, enacting its program will require quite a balancing act and deft political management. Yet, after the initial jitters, markets have rebounded, strengthening the peso and the stock market, and 2021 saw a significant increase in foreign direct investment. The appointment of Mario Marcel, the former central bank president, as finance minister reassured the business community. That said, a key challenge remains the relationship of the new government with the constitutional convention. Chile badly needs a new constitution, and the process to draft one has so far gone according to plan. Yet, there is some concern that constitutional deliberations and various proposals have been driven more by identity politics than anything else. Many of the delegates to the convention are Boric followers. Lining them up to come up with a modern constitutional charter for the digital age should not be that much of an uphill task”

Mariana Zepeda, Latin America analyst at FrontierView: “There is a lot at stake for Gabriel Boric. Not only is Chile emerging from more than two years of the Covid-19 pandemic, it is also in the midst of a politically and economically transformative constitutional rewrite. While Boric has been one of the key voices advocating for social change in Chile since he was a university student, with power comes great responsibility. His main challenge will be balancing an ambitious social agenda that will likely be enshrined in the new constitution with a deteriorated fiscal position and an uncertain external environment. A tax reform is likely to be one of his first priorities; Boric seems committed to responsible fiscal management alongside gradual social reform. But it will be a fine balance—act too moderate, and Boric risks getting lumped in with the ghosts of the Concertación governments of the past; push too hard, and he risks undermining the institutions and systems that have made Chile a Latin American success story. The constitutional process itself might not even allow for gradualism. Boric will need to either work in lockstep with the constituent assembly, or risk seeing any hard-earned progress on his political priorities undone by a new constitution. Then, he will need to chase what may end up being a fool’s errand: collaborating with a fragmented Congress to ensure that new constitutional articles are implemented as effectively as possible. Markets detest uncertainty, and this process is likely to be anything but stable. Chile is almost guaranteed a challenging short-term outlook, but once the dust settles, Boric’s legacy will hinge not only on the fiscal sustainability of the model he aims to implement, but also on the social outcomes it achieves.” 

Patricio Navia, clinical professor of liberal studies at New York University and professor of political science at Universidad Diego Portales in Chile: “Gabriel Boric is becoming president of Chile at a difficult moment for the country. In addition to the slowing economy and high inflation, Boric will have to deal with the high expectations generated by the constitution-writing process and by his own victory. As a candidate, Boric promised higher spending and more social rights. As president, he will need to rein in fiscal spending and put the constitutional convention back on track. The convention is poised to produce a maximalist constitution full of social rights and with provisions that will undermine economic development and foreign investment. As the convention has shown little compromise with protecting property rights, the prospects for future economic growth will diminish if the new constitution is enacted. Boric will need to decide whether he will govern with the radical left-wing platform that earned him 25.8 percent of the vote in the first round or with the moderate proposals that gave him the victory with 55.9 percent in the runoff. If he governs as a left-wing radical, he will soon lose popular support and will lead the country on the wrong track for economic development. If he chooses to be more moderate, he will clash with the far-left constitutional convention. Either way, he will face difficulties, although he can survive a clash with the constitutional convention, but his popularity will not survive a sluggish economy.” 

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