Chile Votes for Change

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ChileDespite the calm, Chile’s presidential election Sunday was one of the transformative political moments in Latin America in recent years. This transformation did not entail street demonstrations, a new constitution or the introduction of 21st-century socialism–yet it was no less radical. Chile has transitioned toward a more pluralistic democracy and away from two decades of electoral dominance by the Concertación–a coalition of mostly Socialists, Radicals and Christian Democrats forged in opposition to the Pinochet military government (1973-1989).

Right-leaning Alianza candidate Sebastián Piñera won the first-round December vote, outpacing Concertación candidate Eduardo Frei by nearly 15 percentage points. Sunday, by a closer margin, Piñera pulled another victory, making him the first elected conservative Chilean leader in several decades.

This was not an election driven by issues or ideology: Both candidates promised to continue Chile’s market-friendly macroeconomic policies and its popular social welfare programs. Instead it was driven by personal stories. Piñera presented himself as an entrepreneur who would foster greater innovation and competitiveness; Frei as a wise, experienced former president (he led the country from 1994 to 2000).

Piñera’s victory suggests a new era for Chile’s politics. It signifies that the right has finally emerged from the shadow of Pinochet’s military dictatorship to become a viable electoral alternative once more, able to lead an open and dynamic country without a fear of backsliding into the past. It is the end of the pro/anti Pinochet political divide–the guiding cleavage of Chile’s politics since the 1970s.

The Concertación’s loss is also in some ways the result of its successes. While many talk of the economic growth and stability brought by Pinochet’s reforms, it is the policies and actions of the governing Concertación coalition that have truly transformed Chile into a modern state. These successive governments–through sound macroeconomic management combined with the creation of a broad social safety net–succeeded in reducing Chile’s poverty rate from nearly 40% in 1990 to just under 14% today (nearly equivalent to U.S. rates). Chile’s now much larger middle class is more politically independent, and Piñera openly wooed this cohort–ultimately successfully.

While highlighting the diminishing role of Chile’s old political fracture, this election also highlighted a new divide–that between the old and the young. While Frei and Piñera came firmly from the old guard, the spectacular rise of Marco Enriquez-Ominami, a 36-year-old filmmaker and former congressman with the Socialist party, upended politics as usual. He became the most successful independent candidate in Chilean history, winning 20% of the first round votes. His strength lay in an emerging middle class focused on the future and open to political change. Whether we see an Enriquez-Ominami candidacy again in four years, this will surely be the last election where the leading candidates’ formative years occurred under the Pinochet regime.

But Chile’s future political challenge will be how to engage its younger generations. Unlike their parents, seared by the turmoil of the 1970s and 1980s, Chile’s youth is politically apathetic. Less than 10% of 18- to 29-year-olds are even registered to vote. Many older citizens are also disillusioned. Polls show that 60% of the population believes that none of the candidates–or their parties–represent their ideas well. As the leftist Concertación tries to recreate a winning strategy and the right Alianza looks to deepen its victory, opening up the political system is vital. Chileans are demanding new approaches and more diversity. This election shows us that after decades of dominance by first the right and then the left, Chile’s politics are now up for grabs.

This op-ed first appeared on Forbes.com

Fixing Social Security in Latin America (Again)

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I recently published this article in the Americas Quarterly policy journal, which was republished in Business Chile.

While some in the United States still talk about the introduction of private individual accounts as the way to “save” social security, even the Chileans are rethinking their once vaunted private pension system. After nearly three decades of private pension management, the Chilean system is again poised for reform. This article looks at the dwindling support for private pension systems in Chile and other Latin American countries, the reasons behind this shift, and the potential directions for this wave of social security reform.

Mexico’s Social Security reform

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Mexico finally passed a reform of its public sector workers’ social security system, the ISSSTE system. This system covers 3 million people, or roughly 10% of the insured population in Mexico.

Calderon, unlike Fox or even Zedillo before him, was able to cobble together a coalition of support with for the initiative, including many members of the PRI as well as the deputies of the New Alliance party, headed by former PRI heavy weight and powerful leader of the teacher’s union Elba Ester Gordillo. Gordillo was a key figure in the success of this reform as teachers comprise half of ISSSTE’s clientele.

The successful reform represents nothing new in terms of design. All the main elements of the new system – including the creation of individual worker savings accounts, of a publicly managed pension fund manager (named the PENSIONISSSTE), and the payment of recognition bonds for previous contributions to the ISSSTE system were elaborated years ago by the Finance Ministry. What the current success (versus previous failures) shows is Calderon’s political acumen negotiating with Congress as well as the close working relationship he has with many in the PRI. This bodes well for future reforms, in particular the Reform of the State that is now on the table.

In the short term, the ISSSTE reform will not significantly affect Mexico’s finances. If anything, it makes apparent the medium to long-term state obligations to public workers. All those currently in the ISSSTE system will be given generous bonds for previous contributions, guaranteeing high retirement pensions under the new individual system. But in the long term, this reform will link future benefits to the amount of individual savings and accumulation. This change will encourage future public employees to work longer in order to accumulate the funds necessary for an adequate pension. The current average 54 year old retirement age will undoubtedly increase, even without the new minimum ages also incorporated into the law. Now, with this reform finally behind the government, perhaps the Mexican government can address the real retirement problem – which is the half of Mexico’s population remaining outside of any social security system.