Chile: maintaining a positive image

Chile has long been seen as an exception in Latin America thanks to its political, economic and legal stability, low corruption levels and the highest investment grade rating in the region. But slowing growth, a sharp spike in inflation and political ineptitude are challenging this assumption.   

The likelihood of a new interest rate rise when the Central Bank meets today (Thursday, January 9) following 2007 inflation of 7.8% -- nearly double the top end of the target band of 2.0-4.0% -- will stir further popular ire. 

President Michelle Bachelet, who will complete two years in office in March, has seen her approval rating fall to only 39% recently, linked to perceptions that her government is weak and has failed to resolve either rifts in the governing coalition or major problems with the new public transport system launched in the capital, Santiago, last February.  Chileans are also angry that the spoils from a copper bonanza that has driven strong economic growth over the past three years have not reached their pockets.

Bachelet has recently suffered the resignation of two cabinet ministers, government Secretary-General Ricardo Lagos Weber and Interior Minister Belisario Velasco, and last week announced the third sweeping cabinet reshuffle of her presidency, replacing the ministers of economy, interior, mining, agriculture, planning and public works.

The reshuffle coincided with the resignation of five legislators from the Christian Democrat Party, the largest in the four-party governing coalition, and is unlikely to help to heal the rifts that are undermining the coalition despite giving greater representation to the Christian Democrats.

Bachelet has also called for the resignation of regional governors -- who, in the Chilean political system, carry little weight -- in a bid to improve the government’s image ahead of local elections due in October. 

A poor performance in those elections, likely made worse by slower growth in 2008, will put the ruling Concertacion coalition (in government since 1990) in a weak position in the run-up to the 2009 presidential elections, and may see the legislative agenda stalled this year.  Moreover, the weakness of Bachelet -- Chile's first woman president -- may well scupper the presidential bid of another woman candidate, Christian Democrat Senator Soledad Alvear.