Lessons from the riots in Chile

For decades, Chile has been the standout economy of Latin America. It is the most competitive country in its region and one of the wealthiest. It is the least corrupt among Latin nations and lauded for its business-friendly conditions. Since the 70’s, Chile embraced free trade, economic deregulation and privatization. All these have brought great wealth to this Andean nation.

But tides have turned for this economic powerhouse. In early October, government announced that subway fares during rush hours were to increase by 30 pesos ($0.04). As expected, the public expressed its disapproval. However, the response of Economic Minister Juan Andres Fontaine, made the situation escalate from bad to worse. In a high-handed manner, he said, those who disagree with the price increase should just wake up earlier for a lower rate. It was reminiscent, in style and form, of Spokesman Salvador Panelo words when confronted about Metro Manila’s traffic.

Outrage grew after Minister Fontaine’s remarks leading students to conduct a mass fare evasion (done by jumping over turn styles). Days later, the movement heightened as bands of protesters seized, vandalized and disabled train stations. Eighty-one out of the city’s 164 train stations were damaged and 17 were burned.

On Oct. 18, scores of protesters marched downtown to which the police responded with barricades, water cannons and tear gas.

While riots were in full swing, photos of President Sabastian Piñera circulated on social media showing him enjoying an elegant dinner with family at the posh Romaria restaurant. The specter of an insensitive and detached President fueled the flame.

The following day, lootings began in supermarkets and gas stations were set aflame. Clashes continued between the protestors and security forces. President Piñera declared a state of emergency which suspended the people’s freedoms of movement and assembly. Military forces were deployed to the streets and a curfew was enforced between 22:00 and 07:00 hours. Still, the riots persisted.

The Chilean people criticized Piñera’s for declaring a state of emergency too hastily without engaging in dialogue.

On 25 October, over a million people took to the streets, demanding President Piñera’s resignation. After that, Piñera changed his tone to one that was more reconciliatory. He said, “we (the government) are listening and understanding” and lifted the state of emergency. He then replaced eight of his cabinet members, including Minister Fontaine and the controversial Andres Chadwick, Piñera’s cousin and minister of internal affairs.

Piñera proposed reforms, including a hike in minimum wage, an increase in the state pension and the stabilization of electricity cost. It was not enough, said the protesters. 

Piñera also agreed to a referendum this April where the people will decide whether they would like to replace the constitution (which has not changed since the Pinochet years) and if so, through what means – constitutional assembly or convention.

The casualty count as of end October was 19 dead, 2,500 injured and 2,840 arrested. Meanwhile, the Chilean economy is close to collapse.

How could a nation as strong as Chile fall so quickly under the weight of civil unrest?

The fare increase was only the tip of the iceberg. Beneath it is an abyss of discontent owing to income inequality. A staggering 1% of the Chilean population control 26.5% of the nation’s wealth. Fifty percent of the population are minimum wage earners and they only have access to 2.1% of the nation’s resources. The income disparity is brazen – and this is the root of the problem.

The Chilean people are drowning in personal debt due to a faulty pension system. See, the average Chilean contributes 7% of his salary to the Asociacion de Fondos de Pensiones (equivalent to our SSS) and in theory, the pensioners should receive two-thirds of their last salary per month after retirement. But due to political reasons, a recalibration of the system was done to lower premiums. Today, the pensioner can only collect some 25% of his last salary.

This left the elderly no option but to live with their children. Rent for a two bedroom apartment is typically $220, representing 50% of minimum wage (roughly $450/month). Transportation cost is another 7% of salary. The stress on family budgets have become too heavy for the minimum wage earner to bear.

The cost of education is another burden. In lieu of strengthening free public education, former President Ricardo Logos came up with a system whereby citizens could avail of student loans for private schools and the state would guarantee them. While this made loans easy to come by, banks would charge usurious interests rates on them.

Healthcare costs are exorbitant too. Civilians avoid public hospitals due to their poor conditions. To get quality healthcare, they must go to private clinics. However, the coverage of the country’s healthcare system, Fondo Nacional de Salud, only goes so far. People must still purchase expensive private insurance to access quality healthcare. Without insurance, they fall deeper into debt.

Pension, healthcare cost and the burden of student loans are the heart of Chilean misery.

What can our government learn from Chile’s experience?

• Economic prosperity that is not inclusive will inevitably lead to political unrest. It is a timebomb that can only be diffused by developing a strong middle class.

• Pension, healthcare and education are fundamental to people’s needs. President Duterte has succeeded to deliver universal healthcare and universal access to free tertiary education. It is the SSS that is the problem. Even today, an employee whose last salary was P30,000 and who contributed for 25 years can only expect a monthly pension of about P16,500. Worse, the SSS is in threat of becoming insolvent by 2030 if reforms are not put in place.

• To be in denial of the people’s gripes or worse, minimize them with a high-handed tone can backfire in a horrific manner.

• Haste in invoking military intervention can worsen social unrest.

• Broken campaign promises should not be taken lightly. The people take it as a betrayal.

We wish for the quick resolution of Chile’s woes and hope this painful situation leads to meaningful reforms for Latin America’s miracle economy.