By Alexandra Ulmer and Antonio De la Jara
SANTIAGO (Reuters) - Chilean voters punished President Sebastian Pinera's conservative bloc in municipal elections Sunday, paving the way for a possible comeback by the left in next year's presidential ballot.
Pinera took power in 2010, ending 20 years of rule by the leftist Concertacion coalition. Many Chileans hoped he would tackle social inequalities more effectively than his predecessors, but polls show they are disappointed so far.
Chile, Latin America's poster child for economic stability, is set to grow a brisk 5 percent this year. But income inequality has barely budged since 1990 despite copper windfalls and it ranks the highest among members of the Organization for Economic Cooperation and Development (OECD).
The conservative Alianza bloc won 37.47 percent of votes in races for mayor and city council positions while the Concertacion won 43.1 percent, government data showed. Pinera's bloc also lost control of key areas including central Santiago, the affluent Providencia district and Concepcion, Chile's second-largest city.
Many voters never warmed up to billionaire businessman Pinera, whose image has been battered by months of protests for free and improved education, tougher environmental laws and expanded indigenous rights.
"This is a rejection of Pinera as a person and the promises of the Alianza that weren't fulfilled. People expected improved standards of living," said Ricardo Israel, a political analyst at Chile's Universidad Autonoma.
Marta Lagos, head of the Mori research center, said the municipal elections were a "resounding defeat" for Pinera's government.
"The right was elected to power after 50 years and didn't withstand the first election," Lagos said.
Voter turnout in Sunday's election was an unexpectedly low 41 percent, underlining Chilean disenchantment with politics. This was the first election in decades in which voting was not obligatory, and the pool of eligible voters ballooned thanks to a new automatic voter registration scheme.
Analysts say the low turnout suggests even the left could struggle in the November 2013 presidential vote. The Concertacion is angling for a comeback by popular ex-President Michelle Bachelet, who has not yet said whether she will run.
"This is a warning for both sides that there's discontent, but it's worse news for the Alianza bloc," Israel said. "This means the Concertacion will bet even more on Bachelet. There's a participation problem ... so it needs an attractive candidate."
Presidents in Chile are banned from running for a second consecutive term. Pinera is set to shuffle his cabinet for a third time next month to allow his ministers with congressional aspirations to launch their campaigns.
The Alianza's poor showing on Sunday could mean ministers eyeing the presidency will exit as well, although they would probably not face an official rival for months.
"The question is whether the president's shuffle will only include ministers who will be congressional candidates exiting or if he'll also include the two presidential candidates," said Patricio Navia, a professor at New York University.
Public Works Minister Laurence Golborne, a charismatic businessman, and Defense Minister Andres Allamand, a lawyer and seasoned politician, are seen as the conservative coalition's best chances for holding onto the presidency.
They will likely seek to distance themselves from airline magnate Pinera, who polls show is the most unpopular leader since Augusto Pinochet's dictatorship ended in 1990.
Golborne had a 62 percent approval rating and Allamand a slimmer 44 percent in the July to August period, according to pollster CEP. But former president Bachelet trumped them both with a 76 percent approval rating.
"I think both of them (Golborne and Allamand) would be good challengers, strong challengers," said Risa Grais-Targow, associate at Eurasia Group in Washington, D.C. "I think Bachelet would probably beat either one, at this point ...(but) if Golborne plays it right, maybe he would be able to do it."
Bachelet, a pediatrician-turned-politician, now heads the United Nations women's division. Several analysts say she will probably return to Chile after February 27, when the country commemorates the third anniversary of a devastating earthquake.
Bachelet's legacy was tainted by a failure to effectively evacuate Chile's coastline following the 8.8 magnitude quake, leaving hundreds at the mercy of the ensuing tsunami.
It is not clear whether the leftist Concertacion will hold primaries to elect a presidential candidate or whether its leaders will hand-pick the person.
Regardless, Bachelet is in no rush to break a silence that has worked to her advantage so far, analysts say.
"If she says anything she risks lowering her popularity," Israel said.
(Writing by Alexandra Ulmer and Hilary Burke; Editing by Cynthia Osterman)