Latin America’s poster child seeks a third way out of crisis

Latin America

When Chile’s social unrest exploded last month, a saying started to do the rounds to express the significance of what was happening: “Neo-liberalism was born in Chile and it will die in Chile.”

The process to create a new constitution announced on Friday last week might go some way to assuaging the grievances that were aired on the streets of towns and cities the length of Chile.

However, if politicians are to have any hope of securing longer-term stability, they will need to address the inequality that lies at the heart of the troubles.

Whether neo-liberal, market friendly or simply encouraging of business, the policies under which Chile has become South America’s wealthiest nation are now about to change, perhaps radically.

What comes next will be closely watched to see whether it offers a new model for greater equality and economic growth at a time of widespread unrest across the region.

“This is a moment for Chile to chart out a new terrain,” said Jennifer Pribble, an associate professor of political science at the University of Richmond in Virginia. “It’s a tall task, but this initial political response could lay the groundwork to renegotiate a new kind of development model that constitutes a third way in the Latin American context.”

Under the accord, Chile is to hold a referendum in April next year to decide which body draws up the constitution. Whichever body is chosen would have nine months to write up the charter that will then be put back to voters.

The agreement is a major step toward solving a social crisis that has shaken the nation for the past month. What started as a protest against a 30 Chilean peso (US$0.04) rise in subway fares on Oct. 18 quickly snowballed into the biggest social unrest Chile has seen since the end of then-Chilean president Augusto Pinochet’s dictatorship in 1990.

Demonstrators want a complete overhaul of Chile’s free-market system designed by US-trained economists — the so-called Chicago Boys — during the dictatorship. Demands encompass everything from education, pensions, healthcare, wages, utility bills and even road tolls.

The constitutional process “will go a long way to calm the social unrest, but it is not enough,” said Claudio Fuentes, a political scientist and professor at Universidad Diego Portales in Santiago, adding that the agreement “opens the door to advance in other issues.”

Chilean President Sebastian Pinera’s center-right administration has started the process.

Last week, newly appointed Chilean Minister of Finance Ignacio Briones presented a bill to reform the tax system, saying that it was targeting the wealth of the “super-rich.”

Just two years earlier, Pinera had won election on pledges to cut taxes for the rich and boost economic growth. Those promises are now a distant memory.

The government has also unveiled a US$1.2 billion social agenda that includes a 20 percent increase to the minimum pension, a new minimum income set at 350,000 pesos, a reformed funding model for the public healthcare system and a freeze of utility prices.

However, the government has a mountain to climb over inequality after 40 years of unfettered free-market growth. Chile is the most unequal member of the 36-member Organisation for Economic Co-operation and Development.

Chile might be the wealthiest nation in South America, but the average monthly income is 574,000 pesos, Chilean National Statistics Institute data showed. The median income, the midpoint of all salaries, is a mere 400,000 pesos.

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