Chile: Bachelet’s good start; Marcel can make it happy
The country’s president-elect knows little of economics, but is set to appoint a market-friendly finance minister.
Would that all Latin presidential elections went as smoothly as the one that just took place in Chile. Chile is by far the most stable country in Latin America but even so a market-neutral handover from the hugely successful presidency of Ricardo Lagos was far from a foregone conclusion.
Indeed, for much of her candidacy Michelle Bachelet, the president-elect, was viewed with suspicion bordering on outright animosity by much of the business community and the markets. A doctor by training, she knows very little of economics, in stark contrast to her predecessor. Making matters worse, from the market’s point of view, is the fact that the ruling left-wing Concertación coalition has a majority in congress for the first time ever, making it easier to implement populist policies.
It is to Bachelet’s credit, then, that she is almost certain to appoint Mario Marcel as finance minister – a choice that will make the markets very happy. Marcel is the architect of Chile’s structural surplus – the counter-cyclical fiscal policy that demands a surplus of 1% of GDP after accounting for variations from long-term trends in the business cycle and the copper price. In 2005, for instance, with copper at an all-time high, Chile’s fiscal surplus was closer to 1.5%.