Will Chile and Argentina arrest that trend this fall?
Will Chile and Argentina arrest that trend this fall?
A lot has been written about the flight of taxpayers and capital from badly governed blue states to sensibly run red states.
But it’s also an international phenomenon — and one that should concern Americans worried about everything from illegal immigration to access to rare metals such as lithium and cobalt.
Last month, Bloomberg News published a major article headlined “Socialist Wave Sends Money Flying Out of Latin America.” It noted that recent elections in Colombia (2022), Chile (2021), and Brazil (2022) have pushed the continent away from sound economic policies: “This movement to the left politically has caused wealthy and middle-class South Americans to take their money out of the continent.”
Analysts say that more than $137 billion left South America in 2022, and the flight is accelerating this year. The 2022 level is a 41 percent increase from the year before, with much of it going to the United States, Spain, and Panama (which uses the U.S. dollar). Anyone with money is looking for an exit strategy.
But then really encouraging news came last week from Chile, the only country in Latin America that is a member of the Organisation for Economic Co-operation and Development, a group of 38 highly developed countries. After the triumph of a coalition of leftist parties won the 2021 elections in Chile, many feared that the country was about to lose its economic freedom. But Chile had an election on Sunday that Bloomberg News calls “a crushing blow to the government of President Gabriel Boric.” The victory of the incoming conservative party “undermines the young leader’s progressive agenda.” Right-wing candidates won a clear majority of seats on a just-formed Constitutional Council in charge of drafting a new charter. The Left is despondent.
Since 1980, Chile has been governed by a document approved by voters during the military regime of the late General Augusto Pinochet. Under that constitution, whose economic provisions were written by free-market professors trained at the University of Chicago, Chile has become the richest nation in Latin America. Poverty has fallen from more than 50 percent in 1973 to some 10 percent today. The constitution was retained when democracy returned to Chile in 1990, but it has been amended in minor ways by both left-wing and conservative governments dozens of times.
But in 2021, the Chilean Left capitalized on concerns about income inequality and Covid along with the inability of the moderate president, Sebastián Piñera, to defend the Chilean model. Voters elected Boric, a 35-year-old former student radical, as president. He promptly formed a government that included the Communist Party and then won an election that selected constitutional-convention delegates who were pledged to dismantle Chile’s free-market constitution.
But the convention ran amok and produced a massive document that entrenched gender radicalism, nationalized water rights, guaranteed Chile’s indigenous peoples their own court system, and removed protections for the country’s voucher-based system of school choice.
When voters were asked to approve the new document last September, a stunning 62 percent, including clear majorities of indigenous people and the poor, voted no. The Left promptly arranged for a new election to vote on a “constitutional convention” that would try to pass a less radical document.
But last Sunday, 62 percent of voters rebelled again and voted for conservative parties, with the Republican Party — the most right-wing — alone winning 35 percent of the delegates and the right to veto any changes it disagrees with.
Patricio Navia, a Chilean political scientist at New York University, says the conservative victory makes it likely that Chile is “going to have a constitution very similar” to the old one. “Boric said that if Chile was the cradle of neo-liberalism, it would also be its grave. But neo-liberalism is still healthy and now Boric is in the ICU,” he told Reuters.
So what happens now in Chile? A group of 14 technical experts drawn from all parties has already agreed on a draft of a dozen principles to guide a new constitution. The plan is to have a final vote on the draft this week and then give it to the newly elected Constitutional Council for actual writing. The vote to approve or reject the final proposed text will be held this December 17.
“After the experience of the failed rewrite of 2021–22, . . . assuming all goes to plan, Chile will have a new constitution by the end of this year,” the Chilean consulting firm of Teneo predicts.
But last week’s victory by the Right in elections for the Constitutional Council complicates matters. The Communist Party’s representative signed the draft principles for a new constitution last month, but will the party follow through on final approval this week, knowing that the final document will now be much more conservative than they predicted? No matter how the Communists vote, President Boric will face a tough choice before the December vote by the people.
What if the conservative majority on the Constitutional Council accepts the draft of the technical experts but adds popular provisions that address hot-button issues with Chilean voters? They could include provisions to fight the soaring crime rate, curb unpopular illegal immigration, and guarantee that consumers will have a choice of public or private providers in such areas as health care, pensions, and education. Most of the document would then reflect the draft of the technical experts, but it would also include what the Left would have to regard as “poison pills.”
Boric would be in a tough spot. The current constitution allows him to serve only a single term, and any new constitution is unlikely to change that.
Will he oppose the new document and risk it being approved, leaving his legacy in tatters and his left-wing coalition demoralized and divided going into the 2025 presidential election? Or will he declare neutrality or even favor the new document, infuriating his voter base and leaving office having betrayed his professed leftist principles? His best hope is that the conservatives on the Constitutional Council will insist on putting before voters a document that can be portrayed as merely a retread of the current Pinochet-era document. That could be defeated in a popular vote, but he can’t count on the Right falling into that trap.
“Politics in Chile over the next few months will be a game of at least three-dimensional chess,” Darío Paya, a former Chilean ambassador to the Organization of American States, told me.
To further complicate matters, Chile’s neighbor Argentina has elections scheduled for September before Chile votes on its constitution. The chaotic, inflationary left-wing government of Argentina is so unpopular that it’s likely to lose power. The front-runner in some polls is Javier Milei, a libertarian economist who has named one of his dogs after the libertarian economist Milton Friedman.
Perhaps South America will be able to arrest its capital flight and solve its chaotic economic problems on its own after all.