Analysis: Protests punish Pinera, but Chile economy seen safe

Reuters News
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Posted: Jul 07, 2011 3:58 PM
Analysis: Protests punish Pinera, but Chile economy seen safe

By Alexandra Ulmer and Alexis Krell

SANTIAGO (Reuters) - A growing wave of protests against Chilean President Sebastian Pinera's policies risks hampering his legislative agenda though investment in Latin America's model economy is seen safe for now.

Led by students demanding cheaper and better state education, hundreds of thousands of people have taken to the streets of the capital Santiago and Chile's main cities in recent weeks in some of the biggest demonstrations since the dying stages of Gen. Augusto Pinochet's 1973-1990 dictatorship.

Center-right billionaire Pinera, whose approval rating fell to 31 percent in a survey by pollster Adimark GfK published on Thursday, sought to defuse the student protests by proposing a $4 billion education fund -- which they snubbed.

He is also beset on other flanks -- workers at Chile's state-owned copper giant Codelco plan a 24-hour national walkout next week to protest a management overhaul, while Chile's main umbrella worker union has called a two-day strike for August.

A customer credit scandal at retailer La Polar has also added pressure amid criticism of government oversight. And all this despite the fact Chile's economy is expected to grow more than 6 percent this year on the spoils of a copper boom and rampant domestic demand.

Police have fought pitched battles with rock-throwing protesters in the capital, while thousands of students have looked for other ways to vent -- by dancing as blood-drenched zombies to Michael Jackson's 'Thriller' in front of the presidential palace, and staging a kiss-a-thon.

"It's not just a student movement. There's a strong and widespread discontent that Spain's 'indignados' are also expressing," political analyst Ricardo Israel said.

Conservative Pinera took power last year ending 20 years of center-left rule in Chile, pushing a raft of labor, health, energy, electoral and environmental reforms, though his first year was consumed with reconstruction after a massive quake.

Analysts say many Chileans feel he has failed to deliver on pledges to reduce poverty and raise living standards.

Pinera has also been buffeted by environmentalist protests over his approval of a controversial hydro electric mega-dam project in pristine Patagonia and has been forced firmly onto the defensive.

"We can't resolve all the problems that we've had for decades in a day," Pinera said on Wednesday. Pinera has stood firmly behind his education minister, though he revamped his cabinet in January after his popularity slid.

Students unsatisfied with Pinera's education plan say they will move forward with a "national strike" on July 14.

OPPOSITION IN DISARRAY

Chile's fragmented opposition has been unable to capitalize on Pinera's woes. The center-left opposition bloc he displaced from power has an approval rating of just 22 percent -- far less than Pinera's.

Patricio Navia, a political scientist at New York University, says the protests are diverting attention away from government legislation in Congress, and could even put at risk a series of reforms aimed at turning Chile into a financial hub that rivals Brazil.

"There are so many items on the agenda, like education and the La Polar scandal, that I don't see them advancing with capital market reforms," Navia said. "At least not before September."

"If they don't reach an agreement on education, the government will be a lame duck very early," he added.

But while stock brokers and analysts say the protests are being discussed in financial markets, they caution there's little chance of them denting Chile's economic miracle any time soon given anchored inflation expectations and strong growth.

Chile's economic growth picked up in May from April and surged more than expected from a year earlier, the central bank said on Tuesday, prompting bets the bank will raise its key interest rate again this month.

Chile is a magnet for investment from major global miners like BHP Billiton to energy heavyweights like French energy giant GDF Suez and top Italian utility Enel, who have plowed billions of dollars into the economy.

Enrique Alvarez, Latin America analyst with IDEAglobal in New York, says international markets' perception of Chile as a stable, credible economy remains intact.

"The external perspective continues to be one of focus on very rapid economic growth and very favorable circumstances on the rebound in copper prices, and I think that's illustrated by the strength that you've seen in the Chilean peso of late," he said.

(With reporting by Moises Avila and Maria Jose Latorre. Editing by Simon Gardner)