The New Geopolitics of Energy
Chile has long been considered one of Latin America’s least corrupt countries, which is why recent revelations have left the nation in shock. Both right and left wing parties have been implicated in corruption scandals, and President Michelle Bachelet’s son has been accused of using his influence to make lucrative land deals. The scandals have led to a serious decline in public confidence in the political elite and have damaged Bachelet’s reputation and her ambitious reform agenda.
Some argue that Chile is living through the worst political crisis since the 1973 overthrow of President Salvador Allende by the national armed forces. That is certainly exaggerated. Chile’s democracy under Bachelet is not at risk. Even so, finding a solution to corruption will certainly not be easy, since it requires strong leaders who can commit to injecting greater transparency into party financing. After a period of partisan mudslinging, and the lurid media headlines that followed, many of Chile’s political leaders have begun to recognize that the general public has grown extremely disenchanted with them and the political system as a whole. As a remedy, these leaders have begun behind-the-scene negotiations for a “great accord” that would be implemented by a central institution, like the Congress, to make electoral financing reform a priority.
The current crisis began in October 2014, when the public ministry, the judicial agency that investigates and prosecutes crimes involving public officials, accused the main opposition party, the right-wing Independent Democratic Union, of accepting illegal funds from Penta, an investment bank and holding company, owned by former supporters of the Chilean military regime under Augusto Pinochet. Four Penta executives were eventually convicted of dodging tax payments on their political contributions, and they are now in jail as they await their appeal. This turn of events proved a windfall for Bachelet’s leftist supporters, who quickly denounced the Independent Democratic Union as a corrupt instrument of the political right. They also took the opportunity to vilify Penta and denounce neoliberal policies that led to under-regulation of the private sector. This scandal received widespread attention in the media, especially since federal prosecutors leaked confidential material to reporters in order to promote their case.
The left’s political euphoria over the Penta scandal was short-lived, however. In February, Que Pasa, a respected national weekly, published a scathing account of Bachelet’s son, Sebastian Davalos, a bureaucrat in the Presidential Office of Cultural Affairs, who secured a $1.5 million loan from the owner of the Bank of Chile, Andronico Luksic, one of the country’s richest men. The loan went to a group called Caval, whose owners include Bachelet’s son and daughter-in-law, and was used to finance the purchase of 100 acres of rural real estate that was expected to triple in value if it obtained urban zoning. This disclosure badly damaged Bachelet’s self-styled image as a benign and motherly benefactor of the poor, far removed from the wiles of Chile’s wealthy upper classes.
Then, in February, the corruption scandal escalated when it was revealed that Soquimich, a multinational chemical company headed by Julio Ponce Lerou, had been financing dozens of political candidates since 2010 when Bachelet was in her first term as president. (Although Bachelet has not been accused of corruption, congressional candidates from her leftist party coalition were identified as recipients of the illegal funds.) Ponce is the bête noir of the political left and considered a symbol of the Pinochet regime, which is very much hated by those who back Bachelet. As Pinochet’s son-in-law, Ponce became a prominent corporate executive when the military was in power. After taking control of Soquimich, a major producer of potash and lithium, Ponce partnered with Japanese investors and the Canad-based Potash Saskatchewan, a move that hugely enriched the company. Candidates of all political persuasions were implicated in this scandal—from the right-wing Independent Democratic Union and National Renovation Party to the leftist coalition that includes the Socialist, Popular Democratic, Radical, and Christian Democratic parties. The evidence against them is still in the process of being made public, but the practice of privately financing political parties of all stripes signaled the unsuspected depth of corruption in Chilean politics.
As a result, Chileans are now demanding stricter regulation of political contributions and campaign finances, if not complete prohibition on donations from private companies. Chile already has a number of electoral laws limiting campaign finance, but they have been only laxly enforced by an understaffed and underfinanced electoral agency. In order to really reform campaign finance, there needs to be a level of agreement among the Chilean left and right. Given the polarization of Chilean politics, it is only at times of crisis, such as a threat of a foreign war, that the political system turns to cooperation. Of course, this has made it difficult for Bachelet to move forward with her reform program or address other issues on her agenda, such as gay marriage or abortion. At the moment, Chilean politics suffers from the absence of a strong political center because the multiparty political system has created a fractured Congress that makes it difficult to pass controversial laws.
Of course, making political tradeoffs to obtain majorities in Congress is common practice worldwide, but it often leads to corruption. But unlike other South American countries, such as Argentina, Brazil, Mexico, and Venezuela, where political corruption is endemic and profuse, Chile has traditionally cultivated a reputation for political integrity. For many observers, Chile was considered a model country because an elected multiparty democracy was successfully restored in 1990 after a long period of authoritarian military rule. With free market trade policies, fiscal discipline, expansion of infrastructure, and incentives for private investment and foreign trade, the Chilean economy has grown five percent annually. The country has seen improved salaries and progressively reduced poverty, now calculated by the World Bank as being down to 15 percent from 30 per cent of its population in 1990. The educational system has also expanded, with one million students enrolled in universities and technical schools.
The rapid political and social change in Chile has produced a new middle class that has even greater expectations of its political elite, especially when it pertains to the transparency of money in politics. Chilean men and women are relatively well educated and the open trading economy, based on mining and agricultural exports, has achieved per capita income levels of over $16,000 a year, the highest in South America. However, the tempo of economic growth has slowed under Bachelet and many of the newly wealthy, who have moved up into the new middle class, are in debt and are fearful of a recession.
As a result, Bachelet’s program of social reforms is controversial—since they involve vast outlays of cash—and the corruption scandal will make it all the harder for the public to accept them. She has promised to close the inequality gap by implementing tax reforms that redistribute private wealth to the poor. She also vows to enact sweeping educational reforms and establish free schooling for all students from kindergarten to university and to revise the 1980 Pinochet constitution and its restrictive electoral system. Her education agenda is particularly contentious because it may hurt schools that have been financed with a mixture of public funding and private tuition. The reform prohibits owners of schools who receive public finance from making a profit and denies public financing for schools that don’t pass tight rules set by public inspectors. To pay for the added cost of public schools, Bachelet obtained a tax reform that was expected to add $8 billion a year to federal revenues, but this plan seems less likely than ever to succeed given the slowing economy. The corruption scandal has also weakened Bachelet’s ability to steamroll new legislation through Congress since senators and deputies that are preparing for reelection may be reluctant to support a tainted president. “Chile wants changes, but with stability,” said Harald Beyer, director of Centro de Estudios Públicos, a major Chilean think-tank. “Bachelet has moved recklessly fast to achieve her populist goals.”
With three years left of Bachelet’s presidency, there is already growing speculation over who will emerge as her successor in 2017. The political left has no clear front-runner, although former President Ricardo Lagos has reappeared on the political scene heading a group of constitutionalists who are working on electoral reforms and changes to the constitution. The leading candidate on the right is former President Sebastian Pinera, a wealthy entrepreneur, who is frequently in the news for defending pro-business policies and working to form a coalition of center-right parties, including the right-wing Independent Democratic Union. There are a number of younger aspiring candidates, such as leftist Marco Enriquez-Ominami. His father, Carlos Ominami, was an ally of Allende and a former resistance fighter who became a prominent socialist senator after the military relinquished power. At this stage, given the mayhem triggered by the corruption scandals, it is difficult to foresee where Chile, always a political bellwether in Latin America, is headed. But if the negotiations over the “great accord” against corruption succeed, that will be some much-needed good news for Chile. And in that respect, for Latin America too.