Piñera under pressure as Chile’s protests continue
Current momentum means protests will likely continue in the opening months of next year.
Welcome to the Latin America Risk Report - 12 December 2019
In this edition:
Piñera under pressure as Chile’s protests continue
Former Mexican Security Chief detained on corruption charges
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Piñera under pressure as Chile’s protests continue
After nearly two months of protests in Chile, the government remains under pressure in spite of granting meaningful concessions.
There is significant enthusiasm for writing the new constitution next year. The government is concerned reforms will overhaul the Chilean economic model.
Peaceful protests continue. So does violence and looting. Police repression of protests has played a role in escalating the numbers and violence caused by the protesters.
The Chilean economy has taken a major hit from the protests and may enter recession.
Current momentum means protests will likely continue in the opening months of next year.
Enthusiasm grows for greater reforms in the new constitution
When Chile’s political parties announced they had agreed to a referendum process that would rewrite the constitution, they met a key demand of many of the protesters who had spent weeks on the streets. The country appears almost certain to approve the drafting of a new constitution next year.
The most prominent voices discussing the new constitution are also among those calling for the most radical changes to the country’s political and economic system. Significant and expensive pension reform is almost certainly on the table as is some sort of education reform that reduces the costs for students. The ruling parties in President Piñera’s coalition appear nervous, already discussing ways to campaign against the new constitution and water down reforms once the writing process takes place.
Piñera faces challenges from the Congress
Even as they plan for next year’s constitutional showdown, there are also short term battles in the Congress over Piñera’s time in office. Votes are scheduled this week on whether to punish and potentially remove the president from office. Yesterday, by a majority vote, the Chilean Senate banned Andres Chadwick, the former interior minister, from office for several years for human rights and constitutional violations that occurred during the repression of protests. While Piñera currently has the votes to make it through the process this week (even if it passes the lower house, it would take a two-thirds vote in the Senate to end his presidency, which would require significant numbers of defections from the president’s own coalition), the president’s opposition is likely to continue to throw constitutional challenges at him. With the president below a 15% approval rating, actions forcing Piñera’s allies to continuously cast unpopular votes to rescue the president will raise the pressure on the conservative side of the ideological spectrum.
Piñera has responded to the continued pressure from Congress and the protests with announcements for minor reforms. This week, he said he would put in place policies to protect consumers from market abuses by large corporations. Just a few months ago, these announcements would have been seen as major steps for the president and a large shift in his ideology. After the weeks of protests, the Chilean population barely reacts to the president’s reform announcements.
Police battle a mixture of non-violent and violent protests
Instead of the agreement to debate a new constitution ending the protests, Chileans have continued to mobilize as a way to maintain pressure on the Piñera government. They want to ensure that the government follows through with its referendum, does not use the upcoming months to pass bills in Congress that go against the protesters’ demands, and push for greater reforms in the coming year.
While most of the protesters, particularly in Santiago, are non-violent, the level of violence, looting and vandalism in Chile’s protests has been much higher than in the other countries in Latin America that have seen the recent wave of protests. More violent protests also continue outside of Santiago including looting and arson in the cities of La Serena, Antofagasta and Valparaiso. Public infrastructure and private stores and warehouses have been attacked. Some of the violence appears to be organized by groups that believe radical violent protests are the best strategy to create political change. Chilean police believe other violence has been a cover for organized crime to steal items from stores.
The organization and continued actions of those more violent groups remains a major concern for the government and business community. While loosely coordinated and moving in parallel to the peaceful protests, there is not a centralized structure to these violent groups that would allow police to identify leaders or key nodes that would successfully stop the violence. With police unable to stop the groups and their focus divided across all the protests, private businesses will be forced to spend more on private security in the coming year.
The Chilean police have used excessive force including chemicals that have caused burns on protesters bodies and projectiles aimed at people’s faces that have left hundreds of protesters with vision damage or loss. The Chilean institutions are investigating the incidents as human rights violations, but it is not clear when prosecutions will happen and how the police who committed the acts will be punished. According to interviews with protesters, the police violence has been a factor in escalating the protests, bringing people back out to the streets in anger.
The Chilean economy has taken a major hit from the protests and may enter recession.
Many businesses were shut down for days during the protests in October. Some businesses are still rebuilding due to damage to numerous stores and private sector facilities. The government’s transportation infrastructure in many cities has taken a serious hit that has slowed the economy in urban areas. Additionally, the country’s reputation as a stable and pro-business democracy has also taken a hit. The currency is down. Default risk is up.
While recognizing some reforms are needed, many analysts are concerned about the potential constitutional reforms and what they will do to Chile’s government budget and regulatory environment. Chile’s pension system could swing from not providing enough funds to being a massive drain on the government’s budget as it is in Argentina and Brazil.
Protests in early 2020 and the way ahead
Piñera’s faces congressional challenges and protests on the streets, a peaceful majority who protest and a violent minority of protesters causing physical and reputational damage to the country, a police force that can’t seem to stop those violent protests and a police force accused of using excessive repression, and a weakening economy that will likely be reformed in the coming year by a political agenda that goes against his preferred economic ideology.
That’s a tough box to escape. For those reasons, protests will continue into early 2020.
Yet, the country does have a map to exit its crisis at some point in 2020 that appears promising. A referendum early next year to rewrite the constitution followed by a process to elect representatives to the constitutional commission. The commission will rewrite the country’s key legal document and the country will go into an election process in 2021 that should allow new leadership to emerge. Given the demands of citizens, it’s hard to imagine a better path forward to escape the current unrest than the one the Piñera government is in the process of implementing.
Corruption Corner
Mexico - Genaro Garcia Luna was arrested in the United States and charged with accepting millions of dollars in bribes from the Sinaloa Cartel while he was the secretary of public security under President Felipe Calderon (2006-2012). There have long been accusations of various high ranking Mexican politicians accepting bribes, particularly from El Chapo’s group, in exchange for leaving them alone. The initial evidence against Garcia Luna appears to come from witnesses who were themselves members of the criminal groups with some reasons to hold a grudge against Garcia Luna. At the same time, the US will likely unveil additional wiretaps or documentary evidence at the trial to back up the witness testimony.
Calderon’s escalation of the military effort to fight Mexico’s criminal organizations remains a controversial and regularly debated issue within the Mexican political system. Garcia Luna was one of the key architects of Calderon’s strategy. The fact that he was also using his position to profit from the cartels raises serious questions about who was targeted and why during the six years of Calderon’s term that saw a dramatic increase in violence.
There is little doubt that this arrest and the subsequent trial will hit the reputation of Calderon as well as the PAN party he previously led. For Lopez Obrador, who has benefited from the contrasts to his predecessors, the president gets an initial political boost from this arrest. He can blame Mexico’s current security problems on long time corruption of his predecessors as well as poor strategy. At the same time, Mexico’s president should be very worried that if the Mexican cartels were able to bribe their way to near the top of the Calderon government, they will do the same to AMLO’s team.
Mexico - The Mexican federal government is investigating Manlio Fabio Beltrones of the PRI for diverting over US$10 million that was supposed to go to the government of Chihuahua during the administration of Governor Cesar Duarte.
Regional - The Inter-American Dialogue published summaries and key takeaways from their events earlier this year on corruption and transparency issues
Reading List
WOLA - What is Latin America’s Political Turmoil Doing to Civilian Control of the Military?
Bloomberg - Latin America’s Generals Know Their Place
Washington Post - Latin American democracy may be in trouble. The protests are a symptom of increasing mistrust.
WSJ - Mexico’s Journalists Fear Hostile Turn Under President
Foreign Policy - U.S.-Argentine Relations Can Survive Trump’s Tariff Threat
FT - Argentina must preserve anti-corruption legacy
Washington Post - Animosity between Argentine, Brazilian leaders strains ties between South America’s largest economies
Miami Herald - ‘Haiti is like the forgotten emergency.’ UN needs $62 million to combat hunger crisis
NYT - Restore Bolivian Democracy and Break Its History of Coups
ICG - Peace in Venezuela: Is There Life after the Barbados Talks?
Brookings - Venezuela refugee crisis to become the largest and most underfunded in modern history
Vox - Interview with Juan Guaido
Reuters - The ‘ethical coffee’ picked by slaves in Brazil
Eater - Are We Killing the Markets of Mexico City?
BBC - Amazon oil boom under fire at UN talks
Thanks for reading!
I fell a bit behind in writing this week due to some work travel. But I’ll be sending paying subscribers an analysis on Argentina’s new government tomorrow and hope to write about the North American trade agreement and more next week. If you were forwarded this newsletter, please sign up at https://boz.substack.com