Three Issues That Undermine Chile’s Once Popular President · Global Voices
Chile's President <PERSON>, once on the top of popularity now has to deal with a disapproval rating of 65%. Photo taken from the Flickr account of <PERSON> under Creative Commons license.
This article by <PERSON> was originally published on NACLA's website and is republished here as part of a content-sharing agreement.
Chile’s Socialist president, <PERSON>, was once one of the most popular leaders in Latin America, but a year into her second term in office her popularity has plummeted. One cannot engage in political discussion anywhere in Chile without hearing strong criticism of her government. According to the Santiago-based Center for Public Studies (CEP), by late April just 29% of respondents approved of her leadership, while 56% disapproved. More recent polling has her disapproval rating up to 65%. These levels of disapproval are almost as high as those obtained by her predecessor, the conservative <PERSON>.
<PERSON> was elected with 62% of the vote, so what explains the current downturn? The strongest public disapproval—much of it predictable and ideological—has come from right-wing and middle-class business owners, and has been directed at recent tax and education reforms. Indeed, bills introduced during her new term focusing on education, tax reform, labor, and the decriminalization of abortion, have all proven unpopular. But the wave of political scandals that has made headlines in recent months may be more telling as they have alienated her from much of her center-left base.
Tax reform
The tax reform approved in September of 2014 is intended to increase tax revenue in order to finance education, health and other public services. While it reduces the highest tax rate from 40% to 35%, it aims to significantly increase the taxes paid by businesses. Beginning in 2018, business owners will be taxed on total profits, as tax exemptions on reinvested profits, via the Taxable Profits Fund (FUT), will cease. While the FUT has been used to defer paying taxes, sometimes indefinitely, pro market critics say it has served as an important tool for spurring investment.
These conservatives say this reform will cause instability, leading foreign investment to decline. However, an Economic Commission for Latin America and the Caribbean (ECLAC) study notes that despite Chile’s recent economic slowdown, foreign direct investment rose by 14% in 2014, while it dropped by 16% in the rest of Latin America. 289
ECLAC’s <PERSON> noted in an interview: “Chile is not the only country in Latin America that has enacted tax reforms.… Foreign investors come from countries that have adopted similar reforms…”
Political scandals
The situation became complicated for <PERSON> in 2014 when tax reform and fraud converged in what became known as the Penta case. Internal Revenue System officials were accused of colluding to help 122 taxpayers obtain fraudulent tax refunds from the FUT. In return, the officials received kickbacks from the individuals who benefited. One of these was <PERSON>, director of Penta Bank. Prosecutors discovered that controlling partners of the Penta Group, <PERSON> and <PERSON>, claimed greater expenses than they actually had. When <PERSON> was dismissed from his post, he revealed to prosecutors that payoffs had been made to political campaigns—mainly those of the right-wing party, the Independent Democratic Union (UDI).
Even though in Chile it is legal for companies to donate money to political campaigns, this is supposed to be done anonymously in order to avoid influencing a candidate’s future decisions. During the Penta investigation, prosecutors discovered fraudulent receipts belonging to <PERSON> undersecretary of mining, <PERSON>. This led to a case against a mining company called Soquimich, whose main shareholder is <PERSON>, former son-in-law of <PERSON>. <PERSON> stands accused of issuing illegal false receipts to finance political campaigns on both the right (UDI) and the left (the governing New Majority).
Another scandal involves President <PERSON> son, <PERSON>, who is married to the owner of the real estate company Caval. As project manager, <PERSON> planned the purchase of three plots in Machalí in southern Chile, with full knowledge that the land’s value would multiply after rezoning and new urban development. Caval needed $6,500 million pesos upfront, which they used their political connections to obtain through <PERSON>, vice president of Banco de Chile and one of the richest people in the country. Later, <PERSON> and <PERSON> sold the land for $9,500 million pesos, pocketing a windfall of $2,500 million pesos.
The case went public when a consultant sued <PERSON> for non-payment, provoking an investigation. 704