Key Challenges

Lack of consensus hampers reforms
Although Chile, an OECD member, has undergone a considerable and successful modernization process in recent years, it continues to face serious challenges in closing the gap with more developed countries – as well as the gap between the rich and privileged and poor and marginalized sectors within the country. The Bachelet government has only partially succeeded in implementing its ambitious political, economic and social reform agenda. A lack of consensus and financial resources (due to the downswing of the commodity prices which largely determine the country´s macroeconomic performance) holds back wider reform aspirations on tax, labor, pension, education and health care policies, as well as constitutional reforms.
Long-term challenges:
Inequality felt across
social system
Political and strategic planning is undermined by a lack of state capacities and instruments to ensure policymaking has a medium- to long-term perspective, especially in the case of social, economic and ethnic issues. A lack of political and economic decentralization also hampers efficiency. Chile is one of the most centralized OECD countries despite its economic, geographic and ethnic diversity. Neither poverty rates nor socioeconomic disparities have been significantly reduced. Chile remains one of the most unequal countries in the region and OECD. This has consequences for the whole social system, but the effects are particularly palpable in education, health care and pension policies. The lower-middle class is highly indebted and faces strong social pressure to consume. Many middle-income families struggle to maintain their living standards; if one wage earner loses a job or falls ill, families almost immediately have to significantly lower their living standard. The enormous gap between the quality of the poorly funded public education system (where per student expenditure tends to be less than half the OECD average) and its expensive private counterpart renders the elimination of structural poverty and socioeconomic disparities much more difficult. Additionally, the private education system is largely controlled by economic and political elites, both in government and the opposition. In this context, the effect of education reform, especially the end of state-subsidies for private and profit-oriented educational institutions within the primary and secondary education, will be shown in the medium term.
Short- and middle-term challenges:
New center-right government moving
to center
In the general election of November 2017 (beyond the review period), former president Sebastián Piñera received the highest number of votes in the first round (36.6%) and won the runoff for the presidency (54.6%). During the new congressional period 2018-2022, Chile Vamos, the coalition of four center-right parties that he leads, will hold 46% of the mandates in the lower chamber and 44% of the mandates in the upper chamber. Due to the impact of gender quotas, the share of women has significantly increased in both chambers: 22.5% of deputies and 26% of senators.
In his electoral campaign and particularly during the runoff, Piñera pursued a moderate course that even considered the extension of fee-free education, a demand closely associated with the political left. At the same time, he was able to mobilize votes against his opponent Alejandro Guillier, arguing that a Guillier-led government would lead Chile down a dangerous path similar to that observed in Venezuela (“Chilezuela”).
Economic, labor reforms expected
Since he will lack an absolute majority in congress and widespread social demands call for a stronger and more centralized state role, some convergence to the center will be needed to get support for political initiatives. A series of economic and labor reforms are expected in order to put Chile on the path to growth. Chile Vamos’ proposal includes lowering corporate tax rates.
Constitutional reform under discussion
In addition to other ongoing reforms, the newly elected parliament will have to make decisions regarding the proper institutional mechanism for the constitutional reform process initiated by the outgoing Bachelet government, since the constitution does not foresee any criteria for reform or replacement. Procedural options which are being discussed include a bicameral parliamentary commission (Comisión Bicameral), a mixed constituent convention consisting of citizens and members of the parliament (Convención Constituyente mixta), an elected constituent assembly (Asamblea Constituyente) or a plebiscite to let citizens choose between one of the previously mentioned options.
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