Update on Chilean Politics

Patricio Navia

April 2003


When admittedly unjustified speculation about an early departure from the presidency began to appear repeatedly in newspapers, President Lagos regained control of the political agenda and reaffirmed his leadership by appointing center-right economist Vittorio Corbo as Governor of the Central Bank. After the expected resignation of Central Bank Governor and President Carlos Massad, Lagos quickly moved to nominate Corbo and successfully prevented an internal dispute within the Concertación similar to that generated by the resignation of Governor Pablo Piñera in 2001. Although Lagos' nomination still needs to be ratified by the Senate, by appointing an economist associated with the conservative parties more than with the Concertación, Lagos all but secured a swift Senate approval. Lagos is expected to appoint Corbo as president of the Central Bank immediately after the Senate ratifies his appointment as Governor.


With Corbo's appointment, the president sought to put behind him the controversy generated by his inopportune involvement in the Corfo-Inverlink scandal. Lagos wanted to send a clear message to a worried market after the "Vase example" (when Lagos compared the US$100 million loss suffered by Corfo to a house robbery) threatened the credibility of the financial system. However, in commenting on his decision, the president might have again fallen victim of his media over exposure. By claiming that Corbo's appointment responded to his will to appoint the best qualified person for the job, Lagos unnecessarily infuriated leaders of the Christian Democratic Party that had pressed to have a PDC economist appointed to replace Massad. Finance Minister Eyzaguirre, in claiming that Corbo's appointment ended the traditional political party quotas used to fill the vacancies to the 5-seat Board of Governors, worsened the situation. Leaders of the PDC and PS correctly warned against equating quotas with Concertación appointees and linking merit-based appointments with opposition candidates. Moreover, some Concertación senators have begun to question Corbo's links to financial institutions and will likely push for Corbo to make full disclosure of his business interests. Although criticisms against Lagos for accepting to co-govern with the conservative Alianza are unfair, Lagos must avoid alienating his support base with his government decisions. The president successfully presented himself as a national leader above party politics, but his quest to cater to moderate voters and build a stronger support base must not lead him to abandon his hard-core constituency.


Because Corbo's appointment will leave the Central Bank with only 2 pro-Concertación Governors and 3 pro-opposition governors (including the President), Concertación legislators will have a field day accusing the Central Bank for its macroeconomic policy decisions. A possible interest rate hike later this year will be met with solid criticism from the Concertación legislative rank. Concertacionistas will seek to link the likely prudent fiscal policies of the Central Bank to conservative presidential candidate Joaquín Lavín. As an unintended consequence of his appointment, Lagos has given the Concertación the opportunity to criticize the Alianza coalition for the slow economic growth expected for 2003. If the economy picks up steam, the conservative Alianza opposition will seek to take credit for it. Corbo will need to be extremely careful to take on a leadership role that fosters consensus and unanimity among the 5 Central Bank Governors to avoid the likely political game that Concertación and Alianza leaders will develop over the Central Bank decisions.


President Lagos will again have to make a new nomination for a Central Bank governor in December 2003, when Jorge Marshall completes his 10-year term. Marshall is a member of the PPD. The PS has never had one of its own appointed as Governor. It was expected that Marshall replacement would come from the socialist ranks. Yet, the PDC has quickly moved to ask for a PDC economist to be appointed in December to make up for Christian Democrat Massad's departure. If Lagos lives up to his new 'the best qualified policy', the party affiliation of his next appointment should not matter. But the Concertación left-wingers will exert pressure on the president to appoint a Governor that represents their views. Whatever he decides, Lagos will probably not face opposition in the Senate giving the huge political capital he gained by making the Corbo appointment.


As the legislative seasons is underway and the May 21 Annual Presidential State of the Nation address nears, the government needs to advance its legislative agenda. While the Health Reform legislative package keeps on moving very slowly through parliament, other legislative initiatives are moving faster. The probity package is making important progress and although some contentious items remain unresolved, including campaign finance reform and funding for political parties, the president will have some important legislation on his desk before May 21. The Constitutional reform package is also moving forward, but it is unlikely that it will reach final passage before May 21. The divorce law, a symbolic piece of legislation for the Lagos administration, is also moving forward, but it is doubtful that it will be ready for the May 21 State of the Nation address.


In part, the slow pace of the legislative initiatives can be blamed on the understaffed and under-budgeted legislature. However, the government also bears some responsibility. Cabinet ministers matter. Some ministers are more effective in getting their bills passed than others. The cabinet reshuffle last January shows how some ministers are more successfully in the legislature than others. The new Education Minister, former Senator Sergio Bitar has successfully pushed important legislation through parliament. The constitutional reform mandating a 12-year mandatory education for all will be approved before May 21. Other educational reform legislation is also moving forward. Bitar knows the parliament well and has made sure his legislative initiatives move fast through different committees. The new Health Minister, Pedro García, on the other hand had little legislative experience. He has taken longer to learn the inner workings of the Senate and Chamber of Deputies. His legislative agenda is admittedly more controversial than Education's and will also require more funding. But García has kept such a low profile that the entire AUGE Health Reform Plan has all but disappeared from the public agenda.


The January cabinet reshuffle also brought new blood into the political ministries of La Moneda. Government Minister Francisco Vidal has abandoned any pretensions to compete with President Lagos as government spokesperson. Vidal is said to be using his post as a means to build a support base for future political office. Francisco Huenchumilla, the new Presidential Secretary Minister in charge of legislative affairs has also developed a low profile. His 12-year experience in the Chamber of Deputies gives him superb knowledge of the legislative process. He has taken control of the probity agenda and is overseeing its progress in the legislative. That has left Interior Minister José Miguel Insulza has the only political minister with broad powers in La Moneda. Yet, speculations about his possible departure in late 2003 have prevented him from acquiring the absolute political power that many predicted when he survived the last cabinet reshuffle. Lagos recent Corbo appointment is said to have surprised Insulza, who was left out of the loop. Finance Minister Eyzaguirre seems to be gaining the upper hand as the strongest cabinet minister. But Insulza will likely reposition himself with the soon-to-be-announced changes in Regional Intendentes and Provincial governors. Those changes are of particular importance because the new appointees will play a crucial role in the Municipal Elections scheduled for October 2004.


After several months in the defensive because of corruption scandals and internal disputes within the Concertación, Lagos has gained political capital with his Central Bank appointment. If he uses appropriately, he will successfully get some of legislative initiatives passed through parliament and will be ready to announce them when he delivers his fourth Sate of the Nation address on May 21, 2003. Yet, the president needs to remember that political capital is precarious and short-lived. The upper hand he has gained with the Corbo appointment will last only for a few weeks. He needs to make quick and full use of it if he wants to show progress when he addresses the nation on May 21. Yet, after his Corbo appointment, President Lagos for the first time in months has enjoyed peaceful and upbeat days as the man in charge of La Moneda and the nation.