Update on Chilean Politics. May 1999.

Patricio Navia

         With less than three weeks to go before the presidential primaries of the Concertación, socialist Ricardo Lagos counts on a sufficiently high turnout in the open primaries to secure the nomination of the ruling government coalition. Recent polls have shown that more than 1.5 million people are expected to participate in the non-mandatory, non-government-ran primaries and Lagos is favored by a 2 to 1 margin over his Concertación opponent, Christian Democratic Andrés Zaldívar.

         Andrés Zaldívar, senator from Santiago and president of the senate, has stepped up his campaigning, placed newspaper ads in violation of the Concertación campaign protocol and indirectly suggested that Lagos promotes political polarization among Chileans. Some of Zaldívar's close associates have begun to blame the Frei government for Zaldívar expected loss in the primaries. The government's recently exposed inability to solve the electricity supply crisis and to find a negotiated solution to the Mapuche conflict in Southern Chile have served as ammunition to Zaldívar associates to distance himself from the government of his fellow party member Eduardo Frei.

         In the first & widely watched televised debate between the two candidates, a majority of viewers perceived Lagos as a winner over Zaldívar. However, both candidates were criticized for evading difficult questions. Analysts pointed to Lagos' effort to cater to Zaldívar sympathizers to secure their support for the December election. Because Lagos is expected to win the primaries, his campaign strategy has focused on ensuring a sufficiently large turnout and on preventing traditional Christian Democratic supporters from defecting from the Concertación camp if Lagos is chosen as the Concertación presidential candidate. In the debate, Zaldívar insisted on the idea that a Lagos presidency would further polarize politics in the country. He repeatedly suggested that a Zaldívar government would bring about political reconciliation to a political elite deeply divided on how to deal with General Pinochet’s possible responsibility on human rights violations occurred during the military regime (1973-1990).

         Two elements continue to add uncertainty to the outcome of the primaries. A low turnout could result in a better than expected showing by Zaldívar as the Christian Democratic Party is well known for its ability to mobilize its large base of supporters. A sufficiently low turnout out could even give Zaldívar a highly surprising electoral victory. Second, the possibility that crossover votes from conservative voters who will vote for Zaldívar to prevent Lagos from securing the Concertación nomination also adds uncertainty to the outcome of the May 30 primaries.

         In the mean time, the Independent Democratic Union (UDI) candidate, Las Condes mayor Joaquín Lavín has successfully secured the official support of the National Renovation Party (RN). The RN-UDI conservative coalition obtained 40% of the vote in the parliamentary elections of 1997, adopted a new name recently and officially began the Lavín campaign. Lavín has also successfully prevented the consolidation of alternative conservative presidential candidates, including the notable case of former Christian Democratic senator Arturo Frei. Arturo Frei launched his presidential campaign with the unofficial but evident support of lifetime senator General Pinochet early this year. Pinochet's own fate remains undecided but the most recent developments point to a long legal battle in London and Spain before he faces trial or is sent back to Chile. Because a majority of Chileans no longer consider the Pinochet affair relevant, Lavín has avoided discussing the subject and Arturo Frei's strong defense of Pinochet has not found fertile ground among a largely uninterested electorate. Conservative parties, however, have continued to pressure the government to seek the return of the aging former dictator, but Joaquín Lavín has been careful to stay out of the Pinochet controversy in recent weeks.

         Changes in the leadership of the two conservative political parties are likely to occur within the next two months. RN will hold elections in June and two groups are vying for the control of the center-right party. A "liberal" wing wants to regain control after the 1997 electoral loss and the defeat of its centrist political platform brought about by Pinochet's arrest in London in October of 1998. A group more closely identified with Pinochet is also vying to gain control of RN and compete with the UDI for the hard-line conservative vote. At any event, the Lavín campaign should not be affected as RN will concentrate on rebuilding the party during the following months rather than work full force for Lavín's presidential aspirations. Lavín's UDI is expected to reorganize its leadership to concentrate their efforts in Lavín's electoral campaign. The changes there should be the result of strategic than ideological considerations.

         With the Concertación primaries taking up the political debate, the Pinochet situation has fallen out of the public debate. In addition, two critical situations have called into question the political leadership of the Frei administration. Shortages in the supply of electrical power, resulting from the low levels of rainfall and the country's dependency on hydroelectric power generation, have caused popular discontent and large financial losses for many industries. One to three-hour daily power outages have affected the entire country for several weeks. An insufficient regulatory legislation prevents the government from forcing the private electricity companies to generate more thermoelectric power and to compensate users for their financial losses. Public opinion has blamed the government and the private electricity companies together for the power outages. The government has sent legislation to congress to help solve the problem, but electricity company lobbying is expected to block significant expansion of state regulatory powers over electricity companies. Recent heavy rains have helped alleviate the problem, but structural deficiencies are likely to remain and problems will emerge again unless alternative means to produce electricity (thermoelectric) are implemented.

         Conflicts between the native Mapuche indigenous population and forestry companies in southern Chile have also captured the interest of public opinion. Land seizures, arrests of Mapuche activists and threats to take up arms by some Mapuche leaders have brought the prevalent levels of poverty and marginality among the Mapuche to the forefront of public opinion. As the government is perceived to protect the interests of the forestry companies, the public has received the Mapuche cause with sympathy. The government's inability to solve the problem and the failure to negotiate with the Mapuche leaders has brought the Frei administration approval ratings to an all-time low.

         The so-called deal of the century that would have allowed ENDESA Spain to gain control of ENDESA Chile has taken a new turn in recent days. In 1998, the electricity gian ENDESA Spain that controls the Chilean electricity giant ENERSIS moved to gain control of ENDESA Chile, an international electricity company with operations in Chile but larger operations in Argentina and Brazil. The deal was aborted after a group of smaller shareholders denounced a secret pact between Endesa Chile and Enersis. Interests from United States companies got the U.S. government indirectly involved as the release of U.S. documents aborted the deal. Later, the Chilean congress passed legislation to regulate the takeover of shareholding companies by mandating the issue of Public Auction Offers (OPA). In the most recent developments, ENDESA Spain presented the highest OPA, defeating other companies, most notably the U.S.-base DUKE. Two weeks ago, the National Economic Regulator issued a measure to stop the takeover until the anti-monopoly commission could rule on the effect the deal will have on the ownership of electricity producers and distributors in Chile. Although ENDESA Spain's main goal in the ENEDSA Chile takeover is to gain control of ENEDSA Chile's businesses in Argentina and Brazil, the Chilean government is concerned with the almost complete monopoly power the already powerful ENERSIS conglomerate will have on production and distribution of electricity in Chile. Whatever the result of the anti-monopoly commission, the end of the negotiations, accusations, threats and arguments will likely go on for several months. The underlying reason is that several Chilean business conglomerates are positioning themselves to gain a larger share of the pie in the profitable electricity generation and distribution industry in Chile ad the successful ventures Chilean-based companies have undertaken in neighboring countries.

         A reduction in interest rates adopted by the Central Bank to stimulate growth and reduce unemployment were welcome by the financial sector last week. Unemployment stands over 8%, the highest in recent years. Slow economic recovery is expected for the second half of 1999. The economic crisis, together with power outages and the Mapuche indigenous land issues have all negatively affected the government. Yet, the relative independence of the Frei government from the Concertación's selection of the next presidential candidate should isolate the Concertación candidate from the low approval ratings of the Frei administration and should facilitate a expected third consecutive Concertación victory in the presidential elections.