Latin America

Crisis in Chile: a repeat of 2013 Brazil? Or a warning for Brazil’s future?

Chile is facing one of its worst social crises since the end of General Augusto Pinochet’s brutal dictatorship in 1990. A rise in public transport fares ignited a series of street protests and unrest—paralyzing the country, killing 15, and forcing President Sebastián Piñera to declare a state of emergency. On Tuesday night, Mr. Piñera addressed the nation, asking Chileans to forgive him—and his predecessors—for failing to appease creeping anger in the nation caused by increasing levels of inequality.

Brazilians know this script all too well.[restricted]

In 2013, the country saw a hike in bus fares in São Paulo evolve into hundreds of inchoate demonstrations across the country (which at times turned violent) that allowed Brazilians to vent their frustrations with the economy, the widespread levels of corruption in the political system, and—unsurprisingly—a growing social gap between the super-rich and the rest of the country.

But instead of being an imitation of 2013 Brazil, perhaps the Chilean crisis could serve as a cautionary tale to its South American neighbor.

Chile: an example for South America?

Chile is often used as a blueprint for how a South American nation should be run. It is, according to several indicators, the most-developed country in the region. For libertarian economists, it is a textbook example of how a more hands-off approach with the economy allows for growth. Unemployment is low and stable, inflation is under control, and GDP growth is higher than its neighbors..

But there is more to Chile’s apparent peace than meets the eye.

The Chilean economic system, rooted in the ultra-liberal ideas of University of Chicago scholars Milton Friedman and George Stigler (both of whom would later go on to win the Nobel Prize in Economics), has produced stellar indicators. But it has also deepened inequality levels that progressively fractured the country’s social fabric.

The pension model adopted in Chile has been the subject of growing dissatisfaction, as individual savings accounts have not produced returns sizeable enough for retired persons to live on. The average pensioner in Chile today receives less than the minimum wage.

“We grew in great numbers, but people are getting buried in debt,” says Chilean journalist Carola Fuentes, author of the 2015 documentary Chicago Boys,” which focuses on the liberal “shock therapy” Milton Friedman’s disciples introduced in Chile. “The government spoke to global leaders saying that Chile was doing well. But the truth is that rich people made [a lot of] money, based on rules that are not fair for everybody.”

A recent Social Panorama report from the Economic Commission for Latin America and the Caribbean (Cepal) showed that around 26.5 percent of Chile’s wealth is in the hands of the top one percent, including business tycoons such as President Piñera himself. The head of state’s personal fortune is estimated at almost one percent of the country’s entire GDP.

Warning signs

A University of Chicago graduate himself, Brazil’s Economy Minister Paulo Guedes has often expressed his idea of replicating the Chilean model of liberalism. He wants to privatize all state-owned companies, slash import duties on industrialized goods, and remove many subsidies paid by the federal government.

Under President Jair Bolsonaro, the Brazilian government has expressed a desire to increase the reliance on privately-owned schools in the federal education system, following what Chile has already done. Chile does have much better education results than Brazil (and it is not even close), but citizens have continually asked for a publicly-funded system, protesting the heavy education costs for average households and ballooning student debt.

Furthermore, Mr. Guedes’ long-term plan for Brazil’s pension system is to switch to a capitalization model, the same formula that has now brought Chileans to the streets in anger. Unlike the current model, the Chilean pension system involves the use of individual savings accounts which are used to pay for retirement.

This capitalization plan was included in the government’s initial pension reform proposal, but was later removed due to political pressure. There is every chance Mr. Guedes will propose the change at a later date.

Could Chile’s unrest create its own Bolsonaro?

Analysts from across the political spectrum have identified the 2013 protests as a turning point in Brazilian politics—which culminated in the election of Jair Bolsonaro last year, arguably the most radical leader ever elected in Brazil. Forgetting about the needs of the middle class has proven to be a costly bet for establishment parties, which saw themselves trumped by radical newcomers with a pledge to “break the system.”

Chilean protesters carry a sign: "Our education is not for sale." Photo: Simenon
Chilean protesters carry a sign: “Our education is not for sale.” Photo: Simenon

Whether Chile will follow a similar path remains unknown, as any comparison between such different countries must come with huge caveats. Undeniably, however, President Sebastián Piñera is facing his biggest challenge since taking office.

“The middle class, which pays taxes and abides by the law, keeps getting angrier. In the meantime, white-collar crimes go largely unpunished, as the rich often escape prosecution. The outcry around transport prices simply the straw that broke the camel’s back,” says Ms. Fuentes.

With two years left in his term and a leading diplomatic role in 2019 due to Mr. Bolsonaro’s absence, Chile’s billionaire leader is situated between two diametrically opposed analyses: while he is not nostalgic about the Pinochet dictatorship, his response to the unrest in Chile has been called authoritarian. After suggesting his country was “at war,” his Defense Minister General Javier Iturriaga del Campo replied to Mr. Piñera saying he was “a happy man, not at war with anyone.”

To provoke a “Bolsonaro effect,” Chile would first need to hit an economic crisis, like the one Brazil suffered in the mid-2010s. In Chile, that is still some way off. Besides, the country’s way of dealing with its military dictatorship past is far different to Brazil, which has largely swept it under the rug. Until today, Chile continues to condemn human rights abuses committed during its own Years of Lead.[/restricted]

By Lucas Berti

Lucas Berti covers international affairs — specialized in Latin American politics and markets. He has been published by Opera Mundi, Revista VIP, and The Intercept Brasil, among others.