Chile's Bachelet promises reforms after landslide election win

Chile's President-elect Michelle Bachelet answering a question during a news conference at her headquarters in Santiago, on Dec 16, 2013. Ms Bachelet set the stage for the formation of her Cabinet on Monday, a day after sweeping back to power wi
Chile's President-elect Michelle Bachelet answering a question during a news conference at her headquarters in Santiago, on Dec 16, 2013. Ms Bachelet set the stage for the formation of her Cabinet on Monday, a day after sweeping back to power with a huge majority in presidential elections on promises of major tax and education reforms to redress Chile's social divisions. -- PHOTO: REUTERS

SANTIAGO (REUTERS) - Centre-leftist Michelle Bachelet set the stage for the formation of her Cabinet on Monday, Dec 16, 2013, a day after sweeping back to power with a huge majority in presidential elections on promises of major tax and education reforms to redress Chile's social divisions.

Ms Bachelet won with about 62 per cent support, the highest share of votes for any presidential candidate since the country returned to holding democratic elections in 1989.

Sunday's landslide victory against Ms Evelyn Matthei, the sharp-tongued conservative candidate of the governing coalition, puts Ms Bachelet back in the Moneda presidential palace after a four-year gap and gives her a mandate to push for an education overhaul and the fiscal reforms to help pay for it.

Attention now turns to the details of her programme, the bargaining she will need to push reforms through a possibly thorny Congress and which of her colleagues will be appointed as the ministers who can help deliver.

"We will do everything we can so when we get to March we can immediately start governing with all the energy, dynamism and effort that is needed to fulfil the mandate handed us by the people," Ms Bachelet said at a news conference on Monday. She is slated to take office on March 11.

Ms Bachelet ran on a platform of social policies to address a deep divide between rich and poor. Chile, the world's top copper-exporting nation, is ranked the most unequal country in the 34-member Organisation for Economic Cooperation and Development.

"She will govern a country with profound demands for change," Senator Ricardo Lagos Weber of Ms Bachelet's New Majority coalition told Reuters. "The country isn't flat on its back, it is healthy, organised, growing economically, creating jobs and improving salaries. But it is also deeply unequal."

Ms Bachelet has promised 50 reforms in 100 days after taking office.

Changes to the tax regime - which are due to include a hike in corporate taxes to 25 per cent from 20 per cent - are likely to be the first new laws that Ms Bachelet tries to push through as she seeks the extra funds needed for education and health reforms, analysts say.

Good-quality schooling is generally only available in Chile to those who can pay, and massive student protests demanding change - which sometimes turned violent - hurt the popularity of outgoing conservative President Sebastian Pinera.

If Ms Bachelet winds up watering down her promises because slower growth makes increased public spending tricky - or if opposition becomes obstructionist in a Congress that remains divided after Parliamentary elections last month - she could herself face popular protests.

Last month, Ms Bachelet's bloc clinched the simple majority in both houses of Congress that it needs to pass tax reforms.

But for the four-sevenths majority required for education reform, Ms Bachelet will need to enlist independents or opposition legislators in the Senate and House of Representatives - from some of whom she has already received hints of backing.

The devil will be in the details of her reform proposals, said Ms Marta Lagos, head of pollster MORI.

"Now we're going to see the fine-tuning of the proposals ...

the difficulty in Congress will be agreeing on the details of the reforms," Ms Lagos said.

Meanwhile, markets are also anxious to hear more on the details of her tax reforms, plans to create a state-run pension fund and who might be tapped to head the crucial Finance Ministry.

"While we think most of these concerns are priced into current valuations, this could continue to generate volatility in upcoming months," Mr Diego Celedon at JP Morgan said in a note to clients.

Ms Bachelet said on Monday that she will announce her new Cabinet in the latter half of January. Her programme chief Alberto Arenas is considered a favourite to be finance minister.

However, a choice such as former Central Bank head Jose de Gregorio, who is seen as a possible member of her Cabinet, would be considered a more moderate option "and would generate more calm in the capital markets," Mr Celedon said.

The start of Ms Bachelet's administration coincides with a period of slower growth for Chile and falling copper prices, which may make higher public spending a juggling act.

As well as an ambitious spending programme, she has pledged to reduce the effective fiscal deficit from roughly 1 per cent of gross domestic product to zero by 2018.

"Bachelet has promised a lot, and expectations are high, while the (economic) situation isn't as favourable as it was in recent years," said political scientist Patricio Navia, a professor at New York University.

After expanding 5.6 per cent last year, Chile's economy is seen ending 2013 with 4.2 per cent growth and hitting between 3.75 per cent and 4.75 per cent next year.

Additionally, the US Federal Reserve is expected to announce a pullback of its bond-buying programme sometime soon, with some investors betting this could happen as early as this week.

The programme has supported riskier assets such as commodities and equities. A tapering of the rate of purchases may heighten global volatility and borrowing costs for Chile and other Latin American countries.

It would also hit the price of copper, Chile's key export. Prices of the metal have already slid about 10 per cent this year but were up on Monday on hopes of a dovish stance from the Fed this week.

The Chilean peso closed up strongly against the dollar on Monday, although traders attributed that to wider bullish markets and the rising copper price.

The result of Sunday's election was already priced in, traders said.