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Weekly Report - 25 March 2021 (WR-21-12)

Second wave threatens to sweep away Chile’s elections

There is a growing risk that the most important elections for 30 years in Chile could fall prey to the pandemic. Voters are scheduled to go to the polls on 10 and 11 April to choose 155 delegates to sit in a constitutional convention to draft a new constitution to supersede the magna carta drawn up under the military dictatorship led by Augusto Pinochet (1973-1990). But around 75% of the population is now in full lockdown to try and contain the spread of coronavirus (Covid-19). Not only is the number of infections peaking but the number of patients in intensive care is also at a record high. The government led by President Sebastián Piñera is reluctant to postpone the elections, but it would be unwilling to run counter to scientific advice if there is a real threat that the health system could be tipped over the edge by a large number of people voting in these elections.

Not since the ‘no’ side won the 1988 plebiscite that spelt the end for Pinochet’s rule has there been such a significant election in Chile. Another plebiscite, in October last year, saw an overwhelming number of Chileans vote in favour of a constitutional convention to draft a replacement for the Pinochet-era constitution. There is a lot at stake. The composition of the convention will be pivotal to the shape of the future constitution. Conservatives fear that the elements of the constitution that ensure a market-friendly business environment, attracting foreign investment and underpinning years of economic growth and stability, will be torn up; liberals want to see a new pluralist social contract infused with the spirit of social justice. The high threshold of a two-thirds majority to approve the text could instead see an unwieldy and even contradictory constitution emerge out of the necessity of compromise.

The biggest uncertainty right now, however, is whether the elections will even go ahead as planned as a wave of Covid-19 places them in jeopardy. Large parts of the Santiago metropolitan region were placed under a full lockdown on 19 and 20 March as the average number of daily Covid-19 cases climbed over 5,000. On 20 March they surpassed 7,000, the highest figure since the peak of the pandemic in Chile last June. Intensive care unit occupancy reached 95%, a record for the pandemic. This prompted the president of the highly influential medical union Colegio Médico, Izkia Siches, to warn on 23 March that complete saturation was an imminent risk.

Siches was not alone in raising concern about the risk of staging elections at this moment. María Teresa Valenzuela, an epidemiologist and part of the government’s Covid-19 advisory team, said that while last October’s plebiscite was held during “a fairly normal situation”, Chile was now at “a critical stage of the pandemic”. Valenzuela suggested that one option could be to prioritise the constitutional convention elections but postpone the concurrent regional and municipal elections.

President Piñera already took the step on 15 March of spreading the elections over two days rather than just 11 April in order to try and prevent long queues and preserve social distancing, and the government spokesman, Jaime Bellolio, said the plan at present was still to hold the elections. But the government could be influenced by a survey conducted by the leading local market research company Cadem published on 22 March, which showed that as many as 62% of respondents supported postponing the elections due to the rising number of infections. A further 42 communes went into lockdown on 25 March, half of them in Greater Santiago, but also other cities nationwide too, placing some 13.7m people, around three-quarters of the population in quarantine under tough restrictions. The whole of the metropolitan region will go under quarantine on 27 March. The health minister, Enrique Paris, said the widespread quarantines meant the option of postponing the elections would need to be weighed up.

Shortly before announcing the new restrictions, Piñera delivered a national address in which he unveiled a new US$6bn ‘Covid Fund’, 2% of GDP, to mitigate their economic impact. This comes on top of the US$12bn approved last year for this purpose. There will be an extension of the Ingreso Familiar de Emergencia (IFE) of Ch$100,000 (US$140) per month for the most vulnerable until June; a ‘Covid bonus’ of Ch$60,000 (US$83) for each family member in quarantine for a day or more from March to June; a voucher of Ch$500,000 (US$650) for middle class families that meet various criteria, along with a zero-interest solidarity loan; and additional bonuses of up to Ch$250,000 (US$325), with subsidies and support for small businesses.

The bewildering array of bonuses, subsidies, vouchers, and loans was broadly welcomed but criticised for being overly complicated and promising more than it would deliver. Fuad Chahín, a deputy and president of the centre-left opposition Democracia Cristiana (DC), said it all “sounds good but is full of conditions, requirements, and small print when it comes to implementing it”. Even Mario Desbordes, the presidential aspirant of the centre-right Renovación Nacional (RN), part of the ruling Chile Vamos coalition, said it should be simplified.

If Piñera had hoped that the ‘Covid Fund’ would do the trick and stop the opposition and members of Chile Vamos from seeking to push through a bill allowing a third withdrawal from pension funds he was in for a rude awakening. Congress began debating such a bill on 24 March. It is opposed by the government, which argues that it will mortgage the future of some 3m people.

Proponents of authorising a third pension withdrawal contend that it will not just keep people afloat amid the pandemic but also help to reactivate the economy, which declined by 5.8% in 2020, the heaviest contraction since 1982.

The president of Chile’s central bank, Mario Marcel, said on 19 March that the economy should bounce back to grow by 5.5%-6.5% in 2021. Marcel said this was positive compared with most other countries in the region, and would be driven by domestic demand, with increased consumption due in large part to government transfers and early withdrawal of pension funds. Copper prices are also soaring, approaching the historic high of US$4.6 per pound set in February 2011. This prompted the lower chamber of congress to dust off a bill introduced by opposition deputies back in 2018 to introduce a 3% royalty on copper and lithium sales. Deputies voted by 91 votes to 36 on 24 March in favour of the proposal, which must still clear the senate.

Supporters of the bill say the additional tax could be used to fund development projects and drive the post-pandemic economic recovery. The bill is opposed by the mining industry and the government, which contends that it will disincentivise mining investment needed to reactivate the economy and is unconstitutional as only the president can create a new tax.

Vaccine

With three-quarters of the population in quarantine, Chile provides a cautionary tale that even a rapid vaccine rollout is not sufficient to arrest the spread of Covid-19. More than 5.8m people have received the first dose of a Covid-19 vaccine in Chile, a frontrunner in the global vaccine race. This showcased the Piñera administration’s business acumen and logistical efficiency, resulting in a sharp increase in support for its handling of the pandemic. But the surge of infections over the last month due to increased movement during the summer holidays (and quite possibly public complacency in the face of the successful immunisation programme) saw the approval rating of the government’s handling of the pandemic fall 13 percentage points on last month to 45%. A sustained economic recovery will depend upon suppressing the infection rate and completing the vaccination programme.