With Its New President, Chile Could Take a (Left) Turn for Worse

COMMENTARY Americas

With Its New President, Chile Could Take a (Left) Turn for Worse

Mar 15th, 2022 5 min read

Commentary By

Anthony B. Kim @akfreedom

Research Fellow and Editor of the Index of Economic Freedom

Mateo Haydar

Research Assistant, Latin America

President of Chile Gabriel Boric poses for the photographers during the official government photo ceremony at Palacio de la Moneda on March 12, 2022 in Santiago, Chile. Claudio Santana / Getty Images

Key Takeaways

Boric, a former student protest leader and member of Congress, won the Chilean presidency last year by riding a left-wing populist wave of anti-market sentiment.

How the new government engages with the radical left of the region and with authoritarian powers could well be decisive for Chile’s sovereignty and free markets.

Alternatives to free market-driven good economic governance, such as socialism, have proved to be ineffective to the task of eliminating inequality or corruption.

Gabriel Boric, Chile’s youngest president ever, was sworn into office on March 11, and will shape the direction of the country over the next four years.

Boric, a former student protest leader and member of Congress, won the Chilean presidency last year by riding a left-wing populist wave of anti-market sentiment.

The 36-year-old president, the youngest current head of state in Latin America, has acquired a mandate for some significant changes, but he will quite likely struggle to advance his big-government, socialist agenda through an evenly divided Chilean Congress.

Both the potential domestic and foreign policy agendas of the new president raise questions about Chile’s long-term future and the role it will play in Latin America. 

To be sure, only time will tell what kind of new Chile will emerge in coming months under Boric’s presidency. 

Yet, there is a real risk that the principles and policies that have underpinned Chile’s great economic success will be abandoned or undermined, in light of Boric’s statist, populist agenda that focuses on drastically expanding state provision of social services, such as pensions, health care, and education, as well as increasing the scope of environmental and labor regulations.

Boric’s election takes a sharp turn away from the more moderate, center-left governments that for the most part governed Chile since its return to democracy in 1990. The new economic agenda projects an ambitious expansion of the state between 5% and 8% of total gross domestic product, likely a one-third increase in the size of government.

The new president plans to seek to overhaul the private pensions system; to intervene in existing free trade agreements, which Chile has with more than 50 countries, including the United States; and to expand public debt from the 38% of GDP, where it stands currently, a sharp contrast from just over 3% of GDP where it stood 15 years ago.

Moreover, the ongoing constitutional reform process and concerns about its impact on the overall business environment further cloud Chile’s economic environment with a greater degree of uncertainty.

The leftist majority in the Constitutional Convention, initiated last June, seeks to displace Chile’s existing decadesold constitution, which oversaw the longest period of sustained growth and stability in Chile’s history.

The new constitution is likely to include provisions to impose restrictions on mining activity or at worst nationalize Chile’s rich mining sector; measures to distort the autonomy of the Chilean Central Bank; gender quotas across the judicial system, which could impact the short-term makeup of the courts; and a massive expansion of constitutionally enshrined social services expected to drive up government spending.

Even if Boric takes the more moderate approach that voters were sold in the final stretch of the December election, the activist Constitutional Convention may turn out to be a thorn in the side of such prospects.

From a regional perspective, the new president’s foreign policy also raises questions. While Boric has been careful to distance himself from the region’s leftist dictatorships (albeit with a mixed record), he was quick to embrace controversial figures on the Latin American left, inviting Colombian presidential candidate Gustavo Petro and impeached former Brazilian President Dilma Rousseff to his inauguration.

Those are small gestures, but ones that could signal a broader foreign and domestic agenda.

Observers should also pay close attention to any shifts in policy toward China, Russia, or Iran, all authoritarian powers with considerable success in expanding ties with the region, especially true with respect to governments of leftist bent.

China, today Chile’s largest trading partner, has growing interests in the Pacific coast nation, including two “brotherhood” agreements and increasing access to two ports in the Valparaiso region. It also has a Chile-China Antarctic Joint Cooperation Committee that could be revamped much like ongoing cooperation in Argentina, as well as growing stakes in Chile’s lithium and other rare earth minerals sectors.

How Chile’s new government engages with the radical left of the region and with authoritarian powers could well be decisive for Chile’s sovereignty and free markets, as well as for long-term regional security and stability.

For years Latin America’s freest, richest, and most resilient economy, Chile faces a challenging period of political and economic turbulence. Once the example of freedom and sustained growth in the region, much is uncertain about Chile’s future development prospects.

The underlying culprit is not the coronavirus, but an unfortunate, ill-advised, populist flirtation with socialism that has been brewing in the country for more than a decade.

According to The Heritage Foundation’s recently released 2022 Index of Economic Freedom, an annual global benchmark study that measures and compares economic governance, Chile’s economic freedom score is 74.4 out of 100, making its economy the 20th-freest in the index, among the 177 nations ranked.

A five-year trend of gradually declining economic freedom has continued. With scores depressed by losses in fiscal health and trade freedom, Chile has recorded a 2.1-point overall loss of economic freedom since 2017 and has fallen into the lower half of the “Mostly Free” category.  

Like many of their neighbors, Chileans’ legitimate dissatisfaction with the political class and with inefficiencies in social services, exacerbated by manipulation of narratives and disinformation, culminated in violent protests in 2019, precipitating the country’s recent turn to the left.

The challenge for the new government will be how to accommodate political calls for expanded social welfare spending while restoring and ensuring Chile’s economic growth. That’s a tall order that certainly cannot be delivered with a greater embrace of socialism. (Let history be our guide there.)

Boric, the leader of a broad leftist coalition including Chile’s Communist Party, has vowed to overhaul a market-led economic model to fight inequality.

But alternatives to free market-driven good economic governance, such as socialism, have proved to be ineffective to the task of eliminating inequality or corruption, and even counterproductive in that they tend to slow economic growth and thus reduce the resources that society has available to reduce poverty.

In other words, socialism in all its forms has never worked anywhere.

The record is clear. History shows us that freedom and prosperity go hand in hand as the human spirit thrives on virtuous liberty. The proven path to preserving and enhancing opportunity, prosperity, and individual well-being is the path of freedom.

Boric would be well-advised to keep that in mind as he embarks on his presidency.

This piece originally appeared in The Daily Signal