Brazil & Southern Cone - August 2012 (ISSN 1741-4431)

President Sebastián Piñera managed to force a minimum wage increase through congress, but only after a prolonged process that took a heavy political toll on both the executive and the ruling coalition. That bodes ominously for the administration’s imminent submission of its key economic reform, the long awaited tax reform bill [RBS-12-01]. The timing is delicate – ahead of the October municipal elections.

The ruling Coalición por el Cambio, comprised of the conservative Unión Demócrata Independiente (UDI) and Piñera’s more moderate Renovación Ncaional (RN), has been at internal odds on many important issues ever since it took office in 2010. With Piñera’s term passing into its second half, the tensions between the partners have intensified, with the RN’s efforts to promote reforms constantly opposed by a stubborn UDI. This situation has created circumstances whereby any reform project must first undergo extensive negotiations within the ruling coalition before it ever makes it to congress to face the scrutiny of the left-wing opposition Concertación. This political wear and tear on the Coalición por el Cambio is thus double.

Economic policy proposals in Chile, ranked as one of Latin America’s most successful and competitive economies, are strenuously debated by the country’s political factions. As such, the minimum wage negotiations in congress are always complicated. That was the case under the previous Concertación governments and is now perhaps even more so. This year’s talks within the ruling coalition about the minimum wage proposal began as early as May. With labour unions calling for an increase from US$364/month to US$500/month, the RN suggested a compromise of US$400 in an attempt to appease the unions. The UDI countered that anything above US$386 would negatively affect Chile’s employment level. Much to the RN’s frustration, the UDI dug in its heels. With no agreement in sight, Piñera was forced to intervene once again in order find consensus within the ruling coalition.

Piñera called the RN and UDI leaders in congress to a meeting on 8 July at the La Moneda presidential palace to discuss the issue. Local press reports suggested that that the RN senator and party president, Carlos Larraín, was seen angrily leaving the presidential palace before the end of the meeting. This prompted speculation that the coalition had failed to reach agreement with just a week to go before the government was due to present its proposal to congress. However a day later the government spokesperson, Andrés Chadwick, announced that the coalition had reached an agreement and would propose an increase in the minimum wage to US$386. Although Chadwick declared that the coalition agreement was evidence of the fact that “political considerations would no longer affect such important and significant issues”, it was patently clear that the UDI got its way.

Battle in congress

The tensions over the minimum wage negotiations in the ruling coalition did not go unnoticed by the Concertación, which duly sought to exploit them in congress. On 20 June, the government’s motion to legislate on the minimum wage was narrowly defeated (with 50 votes in favour to 51 against) in the 120-seat chamber of deputies thanks to Concertación deputies. It was later approved by the senate, after the ruling coalition agreed to openly discuss its proposal first. But no sooner did the finance minister, Felipe Larraín, finally present the government’s proposal to congress on 10 July, than it was swiftly rejected in the chamber of deputies again, this time with a tally of 57 votes in favour and 60 against. Before admitting the proposal to the senate again, the senate president, Camilo Escalona of the Concertación’s Partido Socialista (PS), urged the government to recall the project altogether so as give itself time to present a better proposal and avoid entering a “zero-sum game in which everyone loses and the democratic system is worn out”.

Escalona’s comments sparked a series of very public recriminations (See sidebar). The UDI and the Piñera executive argued that the attempts to block the proposal risked workers not receiving a salary increase at all this year. The Concertación, together with the RN, countered that the executive was too easily influenced by the UDI, which they suggested had little concern for the fate of Chile’s lowest paid workers and was primarily concerned with defending business interests. In the end the senate followed the lead of the chamber of deputies lead and rejected the proposal on 17 July, by 19 votes to 13.

Piñera resorted to re-submitting the bill by use of the ‘presidential additive veto’, which requires a proposal to be voted on item-by-item first by the pertinent congressional commissions and then by the plenary, with fewer required votes for approval. This did the trick and despite Concertación abstention, the proposal was approved in the chamber of deputies by 51 to 32 and later in the senate by 15 to 1. Afterwards Minister Larraín expressed his satisfaction and duly thanked UDI congressmen for the “continuous support given to the project all the way through”. Larraín stressed that the latest increase was higher than approved under the previous two Concertación administrations and said that unlike previous years the process had been delayed in congress due to “purely political stances”.

It starts all over gain

The Piñera team may have put the minimum wage question to bed, but in the process it created a less favourable environment for its flagship project - a tax reform plan designed to help finance long-term education reform. Back in April President Piñera announced that the government would present its tax proposal tax reform by the second half, with the aim of approving it before the end of the year, preferably before September, when the government must submit its 2013 budget.

The full details of the reform proposals are not yet available, but one of the government’s main objectives is to increase Chile’s tax take by permanently setting the corporate tax rate at a higher 20%. The rate was temporarily lifted from 17% to 20% after the 2010 earthquake to raise reconstruction funds, before falling back to 18.5% earlier this year. The UDI is opposed to this, arguing that it would stifle Chile’s business sector. The RN advocates the adoption of a more ambitious plan that would also increase tax rates in other sectors. Once again, the two partners in the ruling coalition cannot seem to agree.

Nonetheless on 30 July the government said that its political committee would hold a meeting aimed at fine-tuning its tax reform proposal before presenting a draft bill to the chamber of deputies’ finance committee. Making the announcement, Andrés Chadwick said that Minister Larraín has been working incessantly to promote dialogue between the coalition and the Concertación so as to get consensus around the project. The government wants the bill to be discussed urgently in congress. However, that very same day a PS deputy Carlos Montes and his colleague Pablo Lorenzini from the Partido Democráta Cristiano (PDC) said after a meeting with Minister Larraín and the secretary of the presidency, Cristián Larroulet, that the two sides could not find any common points on the issue.

Montes said that the proposal “lacked depth, it is an adjustment, not a reform”. He added that it would not be able to raise the US$700m-US$800m needed to finance education reform in Chile. Lorenzini was blunter, stating, “The reality is that we were unable to move forward. We have goodwill, but the truth is that this looks very hard…in these circumstances we would not be supporting this tax adjustment, we prefer to wait until the next government to promote a genuine reform”. The two deputies asked the government not to submit the bill as an urgent matter in an effort to allow for more time for discussions. Otherwise, they warned, “everyone already knows what our vote will be like”.

Municipal elections draw closer

The government’s decisions to push through its most politically challenging proposals, which have exacerbated the divisions within the ruling Coalición para el Cambio, could not have come at a worse time. Chile’s political parties are gearing up for municipal elections in October. The elections are crucial for the Coalición por el Cambio (and particularly for the UDI), not only because they are the first since recently approved electoral reforms [RBS-12-02], but also because they are the prelude to the 2013 presidential election. The selection of candidates has traditionally been a sensitive issue for the RN and the UDI; the former complains about a lack of representation compared to the senior coalition partner. Given the increased divisions between the two partners, these complaints have become more vocal.

The RN also points to fresh evidence of the diminishing popularity of the UDI in support of its demands. Indeed, early pre-election polls show some prominent UDI mayoral candidates trailing their independent opponents. This is the case in Providencia, where Josefa Errázuriz has a 14-point lead over the incumbent UDI mayor, Cristián Labbé. In the all-important Santiago race, the UDI incumbent, Pablo Zalaquett, is technically tied with Carolina Tohá, the Concertación candidate. The fact that Tohá has been able to garner strong support even though she hails from the smallest Concertación party, Partido por la Democracia (PPD), is another sign of the UDI’s waning popularity.

The Coalición por el Cambio managed to present a joint candidates list for 300 of the 345 mayoralties up for grabs three days ahead of the deadline. Presenting the list the RN president, Carlos Larraín, commented, “It is always hard to agree on names… we struggled for both sides to be represented”. Luckily for the UDI, the Concertación has not managed to present a single list of candidates either and has instead presented three separate lists. Assuming losses in the municipal elections for the Coalición por el Cambio, the RN’s demands will only gather force.

• Recriminations across the board

Insults flew back and forth in congress during the tense debate on the minimum wage. The RN president, Carlos Larraín, got the ball rolling. Declaring that his party was in favour of a higher increase and believed it to be “an extremely justified aspiration”. Larraín’s comments were echoed by a Concertación senator, Guido Girardi, who complained that the government’s wage proposal was “miserable”. He accused it of lacking the “minimum sense of compassion”. Girardi urged RN and Concertación congressmen to reject the proposal. The presidential secretary, Cristián Larroulet, countered that rejecting the proposal would be “irresponsible” to the lowest paid workers, who as a result might not get any increase this year. A UDI senator, Ena von Baer went further and said that congressmen voting against the proposal should be identified and have their addresses published so that workers could personally “take their grievances to them”.

• The unions

Following the approval of the government’s proposed minimum wage increase, the president of Chile’s main workers’ union (CUT), Arturo Martínez, said that the use of the presidential additive veto to push through the motion in congress had “delegitimized” it. Martínez said that the as “imposed” by the government, after being rejected by the congress. Martínez also accused the government of not being open to dialogue with the unions, complaining that “the only one who wanted this increase was [Finance Minister] Larraín, this was not a social debate, but a political one”. Martínez announced that unions would continue to “battle” for a US$500 minimum wage, pledging street demos.