After Tax Reform Triumph, Chile’s President Faces Rockier Road

Chilean President Michelle Bachelet has chalked up her first political victory since returning to power as Congress approved a key tax reform, but she faces an uphill struggle to make good on other promises.

On Wednesday evening, Chile’s Congress, which is controlled by allies of the center-left Bachelet, approved a bill that raises corporate taxes in order to pay for an ambitious package of social reforms, including a planned overhaul of the education system.

But those reforms are proving trickier than the government had expected. Some have yet to be submitted to Congress, while others are embroiled in doubt and debate.

Fed up with waiting, students and workers have been out on the streets protesting. The economy is decelerating rapidly and a string of unexplained bomb attacks has put the spotlight on security.

All of that is turning opinion against Bachelet and her reforms. A recent poll showed her approval rating at its lowest level since she returned to power and opponents of the reforms outnumbered supporters for the first time.

Six months after taking power following a landslide election win, Bachelet’s honeymoon is clearly over.

“Maybe things need to be explained better, with more dialogue. But that doesn’t mean we should stop trying to fulfill what we pledged,” Socialist Party President Osvaldo Andrade said earlier this week.

Education Difficulties

Bachelet, who led Chile from 2006-2010, returned to power this year with a more leftist agenda, determined to tackle entrenched inequality in the top copper producer, one of Latin America’s most developed economies.

However, she is no firebrand socialist and business leaders have mostly, if sometimes grudgingly, accepted her agenda, acknowledging the need for reforms to Chile’s poor-quality education, among others.

But her pre-election pledge for a blitz of reforms, particularly plans for an overhaul of Chile’s tax structure, schools and constitution, was always going to be a stretch.

“We’re at a moment where the government itself is realizing that it doesn’t have limitless political capital,” said Eurasia Group analyst Risa Grais Targow.

In particular, the government is struggling with education reform. The first tranche, which plans to change school funding and entrance policies, is being debated in Congress. Further reforms to make higher education free have been promised later this year but have not yet seen the light of day.

Noisy demonstrations by student movements blighted the conservative administration of former President Sebastian Pinera and hurt his popularity, spurring Bachelet to promise she would make sweeping changes to education.

Now the emboldened students have taken to the streets to protest again.

They complain that the reforms do not go far enough, and that the government is spending too much time consulting private education providers opposed to change.

“The [education] minister has to decide with whom he wants to reach an agreement, with those on the right who want everything to continue the same, or with us, the social movement that wants profound change,” Melissa Sepulveda, president of the biggest student union, said as it staged its latest protest.

There is not yet a sense that education reform will fail but it will likely take longer than the government and student groups had wanted.

And it is not just the students who are unhappy. Unions have been striking in recent weeks, demanding the government make progress on promised labor reforms, while a sharp economic slowdown has many Chileans questioning the government’s handling of the economy.

The government argues that the economic slowdown pre-dates the administration and that it is making progress on what it was voted in to do, beginning with the all-important tax reform.

“I am convinced that we have taken a big step in building a new Chile,” said Finance Minister Alberto Arenas on Wednesday after the vote.

“This will make it sustainable in the long term to make the changes the country needs to cross that mythical threshold of development.”

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