Running in Place

SANTIAGO – A billionaire with a Harvard degree runs for President of Chile promising reforms to enhance productivity and competitiveness, and wins. Once he takes office in 2010, the economy recovers quickly from the global financial crisis, creates jobs, and continues growing until recently. The billionaire, never one to shy from publicity, claims the credit.

Chile is a case of successful pro-market reform, argues Sebastián Piñera, who stepped down from the presidency on March 11. He is wrong. The Chilean economy has expanded, and no one with his or her heart in the right place can fail to celebrate that; but this growth has little to do with the former president’s policies. Even worse, the expansion is proving to be unsustainable, and Chileans will soon feel the consequences of Piñera’s failure to carry out the pro-growth reforms he once promised.

Chile was hit hard by the 2008-2009 financial crisis: foreign loans vanished and the price of copper, Chile’s main export, collapsed. But this time around, the Chilean economy was in shape to withstand massive external shocks.

The government had been running surpluses, public debt was almost nil, and banks were well regulated. As a result, the government of President Michelle Bachelet (who was in office from 2006 to 2010 and has just been sworn in for a second term) was able to launch a potent anti-crisis fiscal stimulus, financed with resources saved from the earlier copper boom. The central bank, autonomous from political pressures and run by highly respected professionals, did its part by slashing interest rates.