As a result of series of external pressures, Chile’s growth slumped to a five-year low of 1.7% in 2014. In this interview with The Worldfolio, President Michelle Bachelet, who began her second spell in office last March, says her reforms will not only help the economy to regain speed, increase competiveness and create a better environment for business; but will also create a fairer, more equal, Chile in which job opportunities and high-quality education and healthcare will be available to all. Ms. Bachelet goes on to explain how Chile, despite the slowdown, continues to attract high levels of foreign investment, and highlights the main opportunities for foreign investors.
March marked the end of the first year of your second spell as President of Chile (first term from 2006 to 2010). Your cabinet has been working at an impressive speed to fulfill the promise to tackle income inequality and ensure more inclusive and just development for all Chileans in the future. How do you evaluate the progress made over the last year?
2014 was a year of great progress for Chile. In order to really appreciate this we have to look at things from a historic perspective, remembering the challenges that were put forward by the people of Chile and which we included in the government’s program.
Chile needed change. While there has been enormous socioeconomic progress made during the past few decades, unacceptable inequality and social exclusion were still affecting people’s opportunities. Moreover, the degree of our economic development required us to take an important leap forward with regard to our competitive skills, which means better productivity, better human capital and more efficient and legitimate institutions.
So, our progress has created more challenges that we must overcome in order to keep moving forward. And Chilean society is aware of this need, and indeed they demand it.
It is with this view that one has to look at the progress made in 2014. Last year was not the start of a new beginning or a break with our history, but a renewal – a new drive to face the sluggishness of the past few years. And that is our biggest achievement, we have left this sluggishness behind us and Chile is now moving again.
We have created important institutional conditions to reduce inequality and segregation, and to go forward in guaranteeing people’s rights. Firstly through structural educational reform that creates conditions for inclusion and quality – making education a right and not a privilege linked to the economic capacity of families.
We have also set a labor agenda that creates more opportunities and symmetries between capital and work. Regarding healthcare, we are making enormous investments in infrastructure, as well as increasing the medical capacity to ensure quality care for everybody. We have made the electoral system more democratic, changing the system inherited from the 24-year dictatorship. We have introduced tax reform that will generate more revenue for new expenses.
And because it doesn’t suffice to fight inequality if we don’t boost economic growth (as that is the basis to create new opportunities), we have concurrently unveiled agendas that go to the heart of increasing productivity and human capital. Among these are the Productivity, Growth and Innovation Agenda and the Energy Agenda.
As you said, we have done many things and at great speed, because it was necessary and it was the right time. In 2014 we not only took an important step forward in development, but we also strengthened our democracy. Although it was an intense year and a lot of work, I am very happy and very proud to be the President of a country that dares to change history.
What are your priorities for 2015?
We have taken the main steps in institutional reforms and now we have to make sure that they are translated into visible improvement in the daily lives of the people, so that they will receive better-quality education without discrimination, so that they will be well attended and on time in health clinics, so that the streets will be safer, so that there will be good job opportunities, so that their houses will have stable and cheaper energy, and so that businesspeople will have an environment of certainty and good investment opportunities.
The pace and multitude of reforms that you have initiated have caused concerns among the business community. Some question the necessity to radically change a model that has proven to be so successful for Chile over the past decades. What are your thoughts with regards to these concerns?
Changes, adapting to new requirements, always causes concern; this is normal. Therefore we need to be careful. We must create certainty and pay attention to the concerns of all the stakeholders in society. Creating social trust allows us to make the transformations that can no longer be put off. Chile has made progress in economic development in the last few decades. But we haven’t meaningfully addressed inequality in our society and the low productivity of our economy. Also, the solutions of yesterday are not always effective to resolve the problems of tomorrow. That is why we must move forward towards more effective and legitimate relations between society, the state and the market.
Chilean business people, being good leaders of change in their companies, know that Chile needs change. Nobody doubts that. And in fact, they have become more and more purposefully engaged in the dialogue around change. We have also implemented the reforms prompter than ever, and that implies providing a climate of certainty in a short period of time. That allows the business sector – which is dynamic and aware of the new opportunities and advantage created when a country strengthens its human capital – to adapt quickly.
In 2014, Chile’s economic growth slowed to a five year low of 1.7%, according to the Central Bank of Chile, compared to growth of 4.1% in 2013. What is your forecast for the economy in 2015?
Our economy has slowed down mainly due to the fall of the copper price and the change in global financial conditions that began with the tapering by the Federal Reserve Board. We are clearly facing a less favorable external environment. In fact, our region as a whole decelerated significantly last year due to this change in external conditions. Our economy has responded to the new environment in a healthy way. For example, despite the deceleration of the economy, unemployment has remained low and stable.
We are confident that the pace of growth will gradually increase to the levels of previous years. First of all, the depreciation of our currency has increased our competitiveness. Secondly, interest rates are low. Thirdly, public expenditure, with a strong emphasis on public investment, will grow by 9.8% this year. Lastly, the recent fall in the oil price gives an important boost to our economy. On top of that, we have been implementing different agendas to boost productivity, to lower energy costs, and to enhance infrastructure through private-public partnerships – all of which is key to our competitiveness.
To sum up, our economy has all the conditions to regain its dynamism. In fact, this year we should grow by at least one percentage point more than in 2014, and we should be approaching 4% by 2016.
Despite the economic slowdown, inflows of foreign direct investment (FDI) into Chile rose significantly, reflecting continued investor confidence in Chile's institutional strengths and opportunities presented by a weaker peso. As part of the reforms, you have announced new institutional framework for FDI – taking a more proactive approach. What incentives are you putting in place to attract more and better investment?
It is important to stress that between January and November 2014 the total net flow of FDI reached $20.9 billion, accounting for an increase of 16% compared to the same period in 2013. This is, without a doubt, a clear sign that foreign investors consider Chile to be a long-term partner, with attractive business opportunities, that go beyond the particularities of a certain moment.
According to UN Conference on Trade and Development’s last report, our country ranks 17th among the economies that attract the most FDI. For an economy of 17 million inhabitants, this is quite an achievement and speaks strongly of the pillars on which our economy has developed.
Even in times of economic slowdown, our economy has not stopped growing. We have a policy of solid fiscal responsibility, consolidated institutions and clear and constant rules, known by all economic stakeholders. That has allowed the market to grow at a steady pace. To complement that, we have built a wide network of free trade and investment protection agreements, which covers 80% of the world´s GDP, allowing us to participate in global value chains in favorable conditions. To summarize, we have both a long-term and solid framework and a friendly business environment to offer to our partners.
On top of that, we have financing programs available both to foreign and local investors, targeting sectors of high potential, along with resources to develop private and public endeavors in applied R+D for crucial industries, such as energy or biotechnology, just to mention a couple.
Such policies led Pfizer to establish a Centre of Excellence in Precision Medicine here in Chile – the first center of its kind to be installed by the company in Latin America – and the arrival in Chile of companies like Sun Edison, which recently inaugurated the largest solar park in Latin America and one of the largest in the world, with a total installed capacity of 100 MW. We are talking about investments that add value to the country.
In this context, and in order to attract the investment that Chile needs, we have developed new proactive policies, aimed at attracting more but also better foreign investment, adding value to our production and our economy as a whole. To achieve that, we have sent a bill to Congress that will establish new institutional framework for FDI and whose foundations ensure non-discrimination, free access to the formal exchange market, the repatriation of capital and profits, and the creation of a new agency to promote Chile as a destination for FDI.
The purpose of this new framework will be the attraction of investment in quantity but also in quality. We are talking about investment that creates jobs, brings competition to highly concentrated sectors, incorporates best practices, transfers technology and training, and fosters auxiliary industries. In short: investment that adds value to our export portfolio as well as our production matrix.
In your opinion, what are the best opportunities for foreign investors in Chile today?
Our business opportunities and the capacity to attract investments are spread out throughout the country. Today we not only offer significant opportunities for FDI in traditional sectors, such as mining, energy and infrastructure, but in new ones that we are keen to promote.
Certainly the mining sector tops the list. Projections of mining investment over the next 10 years are estimated to reach $104 billion, representing, on one hand, a big challenge, but also many opportunities, especially for mining suppliers.
The energy sector is also promising. My administration has put in place public-private collaboration that resulted in the comprehensive Energy Agenda, and we are already seeing real results. Forty five power plants are currently under construction, and 40% of them are renewable energy plants. American companies are playing an important role in this development. Under our concessions program on public infrastructure – airports, highways, dams, etc. – $9.9 billion will be invested through 2020.
But we also want to generate new business areas. That is why we are supporting – with proper infrastructure, targeted training, coordination, and research – projects with high potential; agribusiness, tourism and biotechnology are already listed as successful examples.
We are setting our goals with responsibility to ensure sustainable, comprehensive, fair and consistent development, with concrete investment opportunities that flourish within the best business environment.
According to the U.S. State Department, relations between the United States and Chile have reached historic new heights in recent years. The U.S. remains the largest foreign investor in Chile, while the landmark bilateral Free Trade Agreement has greatly expanded U.S.-Chilean trade ties since 2004. How would you assess the relations between the U.S. and Chile?
For Chile, relations with the U.S. are one of the highest priorities in our foreign policy. The U.S. is a premier partner, not only with regard to investment and business, which stand out because of both volume and quality, but also because of our shared values and views on democracy, human rights, globalization, easing of restrictions on trade, the environment, and development cooperation, among other highly relevant topics on the international agenda.
The close contact developed through means of bilateral and multilateral dialogue strengthened the relations between both countries to a level of strategic association. Within this context, the goal of our foreign policy with regard to the U.S. is to continue building on these relations so that they can be qualified as mature and solid within a framework of mutual respect.
Where would you like to see increased cooperation between the two countries?
The areas we have determined to emphasize in order to move forward towards the mentioned goals and to increase cooperation and contacts are diverse. The most relevant areas have to do with energy, a sector in which Chile has identified the U.S. as a strategic partner to achieve the objectives of our energy agenda, and the same goes for education and science, technology and innovation.
At the same time we are trying to broaden and decentralize contacts – in areas like the ones mentioned and in others – by looking for associations with individual states, such as agreements already reached with California and Massachusetts, agreements in which not only the public sector, but also the private institutions, civil society and the academic world through universities, have an important role. The expectations are to continue in this direction with states such as Washington and Pennsylvania.
The multilateral agenda also offers cooperation opportunities, like for instance the joint support and shared visions with regard to peace and safety (Chile is a non-permanent member of the UN Security Council and our participation in MINUSTAH), and the environment (Chile is headquarters of the Our Ocean Conference in 2015). With regard to development cooperation, Chile is one of the main partners in multilateral cooperation between the U.S. and the Latin American and the Caribbean Region. During my last visit to Washington D.C. in June 2014, I accepted the committed to intensifying multilateral cooperation with the United States and extending it to other regions.
It deserves to be mentioned that Chile is the first country in Latin America to have entered the Visa Waiver program, which allows our countrymen to travel to the US without a visa. This is an important sign of trust towards our country that without a doubt will contribute to making contacts easier and to smooth the flow of people and business people.
What final message would you like to convey about Chile to our readers?
First of all, Chile is a great place to live or to visit. That is why I would like to invite you to come and get to know it. Discover Chile; meet its people; discover the culture and its products. It is a great place for investment. Not only because there are many opportunities in strategic fields (from mining to energy, from aquaculture to agriculture, from urban development to technology), but also because, together, we will translate these investments into sustainable development for everybody. Investing in Chile is good business, and meaningful business.