Within a fortnight, the government and opposition parties are aiming to reach a cross-party political agreement on economic support and reactivation measures and a fiscal strategy for the next 18 months. The need for an agreement has become increasingly necessary amid the worsening Covid-19 situation; the economic shock brought about by quarantines; and signs of social discontent. There is a good chance an agreement can be reached that would help defuse political tensions arising from the government’s Covid-19 strategy, though any agreement will fall short of the broad, national pact that President Sebastian Pinera initially championed. Structural reforms (e.g. to the pension system) are likely to remain largely off the agenda given that these issues will come under scrutiny in the upcoming constitutional debate.
The idea of forging cross-party political consensus has been on the table for several weeks; Pinera initially wanted to announce some sort of pact in his 1 June annual address to Congress, but the address was postponed (to 31 July). However, the need to legitimize the government’s Covid-19 strategy and contain social frustrations has become more urgent. Last week, Health Minister Jaime Manalich admitted that all his Covid-19 projections had “collapsed like a house of cards” as the daily case count continues to rise; yesterday, 1 June, there were 5,471 confirmed new Covid-19 cases. The economic situation is bleak, as evinced by a stark IMACEC monthly economic activity indicator showing a 14.1% year-on-year contraction in April; May is likely to be even worse given the extensive quarantine in much of the Santiago Metropolitan Region (RM). Finally, recent protests in low-income areas of the RM highlight how public frustrations could easily bubble over.
An agreement would help brace a government that came into this crisis weakened by last year’s outbreak of serious unrest. While Pinera has recovered to where he roughly was in the polls in the first half of last October (29%), his disapproval rating is still high at 60% and his frequent missteps continue to make him a political liability. Manalich is also a controversial minister. However, opposition parties have also struggled to articulate a coherent approach to the health crisis. A win-win scenario would see increased social protection measures rolled out, with the Economic and Social Stabilization Fund (FEES) as a possible source of funding over the next 12-18 months; in return, a path back to fiscal sustainability would need to be worked out.
Obstacles are numerous but not insurmountable. To start, there is not much time to reach an agreement. Not only are there differences between parties, but there are also divisions within some groupings, some of which reflect pre-existing cleavages created by an earlier cross-party agreement – hastily reached amid protests last November – to embark on a new constitutional process. Opposition parties will need to rise to the challenge of working with an unpopular government; the left-wing Broad Front (FA) especially remains an unwieldy coalition that is unlikely to act in unison. Some in the opposition say that Pinera is merely attempting to avoid responsibility for the worsening health situation and the economic crisis ahead, while some within the FA have demanded Manalich’s resignation as a precondition for an agreement. Nor would any agreement eliminate the broader debates about Chile’s economic and political model that lie ahead.