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Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the

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Speaker 1: global economy to you now. People have different associations with

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Speaker 1: the South American country of Chile. For older listeners, it

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Speaker 1: make under our images of the dictator Augusto Pinochet. For others,

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Speaker 1: it's probably Chilean merlot or maybe the odd copper mine.

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Speaker 1: But one thing almost everyone knows is that Chile and

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Speaker 1: its economy are stable in a region full of countries

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Speaker 1: that are not. The violent protests in Chile since October

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Speaker 1: have turned that reputation on its head. Demonstrators demanding a

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Speaker 1: more equal society have clashed with police, and the unrest

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Speaker 1: has sometimes tipped over into looting and vandalism that more

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Speaker 1: than twenty people have died, hundreds have been wounded, and

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Speaker 1: thousands thrown into jail, and there have been plenty of

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Speaker 1: accusations of human rights abuses. So the billionaire president Sebastian

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Speaker 1: Pinera was caught off guard at the beginning and fumbled

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Speaker 1: his response. He said that Chile was at war, which

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Speaker 1: enraged the protesters. Then he backtracked and has now promised

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Speaker 1: lots of social projects to bring the demonstrators around. In

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Speaker 1: a minute, I'm going to ask one of Bloomberg's Latin

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Speaker 1: American economist, Philippi Hernandez, whether the protests have put Chile's

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Speaker 1: long term stability at risk and whether they shed light

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Speaker 1: on the challenges facing new governments in Argentina and Brazil.

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Speaker 1: I'm also going to catch up with our trades are

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Speaker 1: Brenda Murray on the latest truce in the US China

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Speaker 1: trade war. But first, here's Bloomberg Santiago Bureau chief Eduardo

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Speaker 1: Thompson on the roots of the economics and social crisis

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Speaker 1: in Chile and where the country goes from here. Understand

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Speaker 1: Chile need to know about Plas Italia, a wide roundabout

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Speaker 1: that marks the dividing line between the upscale neighborhood of

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Speaker 1: Providencia in the district of Santiago Center, the home of

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Speaker 1: government offices. Every time the national soccer team wins, crowds

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Speaker 1: gather there to sing and celebrate. It's also a magnet

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Speaker 1: for political protests. In a way, it's a local version

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Speaker 1: of Washington's National Mall, with wide avenues and parks along

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Speaker 1: the border of the Mapucha River. It's also an invisible

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Speaker 1: boundary the Place Italia Barria or on up from Place

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Speaker 1: Italia is where the wealthy live in Santiago's northeastern districts.

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Speaker 1: Nail Italia. We're never gone down. Best place Italia means

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Speaker 1: someone who has never seen the real world, and by

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Speaker 1: real world we mean in downtown, where most of the

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Speaker 1: people that feel left behind from Chile's economic progress live.

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Speaker 1: Las Italia is the ground zero of the Protestant Chile

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Speaker 1: that started in October. Layers and layers of graffiti now

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Speaker 1: cover the statues honoring past wars, while metal or ward

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Speaker 1: barriers surround the area's stores. A few brave shopkeepers have

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Speaker 1: put ups paper signs saying they're still open. Many have

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Speaker 1: closed for good. On a sunny and hot Monday, I

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Speaker 1: met with a twenty four year old woman named Tad Flories.

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Speaker 1: All around, college age men their faces covered behind masks,

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Speaker 1: directed traffic and set off fire extinguishers. Women near the

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Speaker 1: main statues were doing a topless feminist performance against sexual violence.

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Speaker 1: Police were nowhere to be seen ever since they started

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Speaker 1: be coming here to protest. But I get out of it,

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Speaker 1: turns to violet and there's police repression and protest him

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Speaker 1: because of the bad quality of public health and pensions.

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Speaker 1: Pensions are just too like the addition, know about this,

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Speaker 1: she works at a private clinic that attends to the

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Speaker 1: rich those that live uptown from Plas Italia. This invisible

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Speaker 1: boundary in Plas Italia also inspired David Vargas to protest.

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Speaker 1: Every Friday. After the thirty eight year old technician completes

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Speaker 1: his shift working in the back office of a credit

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Speaker 1: card company in the swanky neighborhood of Nova Las Condes,

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Speaker 1: he heads out here to join the protests. I came

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Speaker 1: to work one day at Glas Conges after it all began,

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Speaker 1: and that is what angered me the most. The place

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Speaker 1: was packed with soldiers. They were guarding everything when absolutely

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Speaker 1: nothing had happened. But if it went downtown or rather

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Speaker 1: places in Santiago, it was pure chaos. They just guarded

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Speaker 1: from Plas Italia to the rich neighborhoods. Very That's how

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Speaker 1: it was, and you can still see that today and

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Speaker 1: David are part of chillis rising middle class. Both have

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Speaker 1: professional degrees. David, for example, comes from a poor family.

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Speaker 1: His father, a former factory worker, collects a monthly disability

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Speaker 1: pension equivalent to about hundred dollars. David's mother worked her

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Speaker 1: whole life cleaning houses to put food on the table

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Speaker 1: for him and his family. I'm protesting mostly because of

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Speaker 1: the pensions, and to emphasize because right now I have

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Speaker 1: privileges that many don't have. I know what it is

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Speaker 1: to live in a poor neighbor. I know what it

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Speaker 1: is to wait for eight hours at public hospitals for service.

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Speaker 1: I know what it means that the elderly received extremely

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Speaker 1: low pensions and don't have enough to leave or to

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Speaker 1: buy food. A few blocks down from plass Italian is

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Speaker 1: where the whole mess started. In a subway station called Chile.

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Speaker 1: Early in October, students began to plot massive ticket evasions,

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Speaker 1: first in New York City Chile and then in other stations,

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Speaker 1: sparked by a fair increase of thirty vessels or four cents.

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Speaker 1: Things got nasty fast. Police special forces clashed with the protesters.

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Speaker 1: Acts of vandalism started and culminated on the night of

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Speaker 1: October eighteen, when unidentified groups set stations on fire. Protests

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Speaker 1: continued and morphed into the biggest social unrest since the

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Speaker 1: dictatorship of Augusto Pinochet. The message was clear. The neglected

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Speaker 1: lower and middle class in South America's richest country was mad,

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Speaker 1: very mad. Outside of the iconic station in downtown Santiago.

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Speaker 1: I met with Claudiaquentis, a professor of political science from

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Speaker 1: the New Year City, Diego Portalis. He has been following

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Speaker 1: social protests for a long time, but the violence of

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Speaker 1: the protests took him by surprise. The people are very,

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Speaker 1: very upset against political parties, against the business community abusing powers.

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Speaker 1: So this is at two sides, a conflict related to

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Speaker 1: social demands and the abuse of power of the lead.

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Speaker 1: Although at the time of this recording, the intensity of

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Speaker 1: the protests seems to have subsided, the damage to the

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Speaker 1: social fabric of Chile and it's once growing economy is undeniable.

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Speaker 1: The Central Bank has warned that if the economy doesn't

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Speaker 1: get back on track, unemployment can jump to more than

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Speaker 1: ten pc. The bisto has had the worst performance of

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Speaker 1: any emergent market currency in the period. Getting out of

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Speaker 1: this will require lot of spending and a lot of

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Speaker 1: soul searching around what led the country there. I think

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Speaker 1: that also makes it extremely difficult to handle that this

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Speaker 1: is domestically created. Most of the crisis that we have

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Speaker 1: had Asian crisis, the global finance crisis were extended crisis

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Speaker 1: that is dean of the New Yar City, Chile School

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Speaker 1: of Economics and former governor of Chile Central Bank during

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Speaker 1: the financial crisis. He says that though income inequality figures

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Speaker 1: have improved and poverty has fallen, it hasn't been enough.

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Speaker 1: All they the munity developments and poor people housing was

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Speaker 1: down in the In the baphory of the of the

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Speaker 1: city we create not get as well, but the extremely

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Speaker 1: dissegregated city, so you are very high inca where if

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Speaker 1: you have middle or low income living different helps. Getting

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Speaker 1: out of this crisis won't be easy for President Pineta.

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Speaker 1: He has promised the five point five billion package of

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Speaker 1: social measures, and the country will issue more dead and

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Speaker 1: spend part of its savings. There's also a promise of

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Speaker 1: a new constitution vote next April, but political parties have

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Speaker 1: stalled discussing the details of the process, and for people

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Speaker 1: such as David Vargas, it isn't the solution. He wants

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Speaker 1: to see the video. I meant anything. The most important

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Speaker 1: measure is that the president should resign because he has

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Speaker 1: shown that he won't bring peace. Neither will political parties.

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Speaker 1: They set up a show and say we've signed a

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Speaker 1: peace agreement, but they don't see that people are protesting

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Speaker 1: because they don't believe in competitions that may be seen

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Speaker 1: as too extreme. But political scientists Cloudy Afuentes says that

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Speaker 1: a major change is long overdue, need to change forever,

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Speaker 1: because the previous let's say CONSENSUV and its stabilty was artificial.

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Speaker 1: It was like a time em bomb in which where

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Speaker 1: pressuring force certain issues. And I think that if we

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Speaker 1: don't change the way society is set up, we might

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Speaker 1: have another explosion in thirty years, in twenty years. It's

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Speaker 1: a lesson that other Latin American countries are paying careful

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Speaker 1: attention to. When similar protests began in Colombia, the government

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Speaker 1: of Van Duke quickly set up talks with unions and

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Speaker 1: social groups to diffuse the tention, While the government of

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Speaker 1: Jai Bolsonado in Brazil has taken the foot off the

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Speaker 1: gas of its markets reform agenda. It remains to be

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Speaker 1: seen if the reforms in Chile or elsewhere will be

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Speaker 1: enough to avoid another flare up of the violence. For

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Speaker 1: Bloomberg News, I'm Edward or Thompson. So I'm I'm joined

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Speaker 1: now by Phelipp Fernandez in New York, who covers Mexico, Chile,

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Speaker 1: and a bunch of other countries in Latin America for

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Speaker 1: Bloomberg Economics. Philippe, thanks for coming on Stephonomics. Thank you

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Speaker 1: for inviting me, Stephanie. We just listened to that piece

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Speaker 1: from Eduardo, and you know, I guess the question is

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Speaker 1: does this does this unrest actually put Chile's really long

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Speaker 1: reputation for economic and political stability at risk? I mean,

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Speaker 1: is this is that the Chilean economic model, such as

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Speaker 1: it is, is it is it fundamentally under threat now?

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Speaker 1: Or are these protests something that are likely to fade.

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Speaker 1: The short answer to your question is that yes, indeed,

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Speaker 1: all of these unrest has raised some risks for the

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Speaker 1: for the Chilean economy and the view, the consensus view

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Speaker 1: of a sterile Chile. What the policymakers have to understand

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Speaker 1: is that in terms of what changes are REQUI fired,

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Speaker 1: they must keep in mind or try to make sure

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Speaker 1: that what has been working well for Chile is maintained.

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Speaker 1: Some good examples of this is that they you now

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Speaker 1: have a very credible and independent central bank, which has

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Speaker 1: helped to keep a low and stable inflation, responsible and

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Speaker 1: sustainable fiscal policy and the overall conditions that have allowed

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Speaker 1: Chile to enjoy relatively stable and positive economic growth. Now,

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Speaker 1: there were some things that were not working in Chile.

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Speaker 1: When you look at the different indicators, you find that

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Speaker 1: despite all of these things that I mentioned before, there's

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Speaker 1: a still high income inequality in Chile. There were limited

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Speaker 1: redistribution policies and low social mobility in part due to

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Speaker 1: limited taxes to high quality education. And any new arrangement

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Speaker 1: that comes out as a result of the of these

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Speaker 1: changes must be sustainable in the long term, and by

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Speaker 1: this I mean at any any fiscal policy measures that

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Speaker 1: result in higher public cector expenditure will have to be

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Speaker 1: upset by the government finding news sources of of revenues,

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Speaker 1: and for the economy as a whole, of course, this

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Speaker 1: probably will imply higher taxes. Any decisions in terms of

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Speaker 1: increasing wages or pensions that could result in higher costs

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Speaker 1: for the for the productive sector will all have to

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Speaker 1: be carefully weighted against the negative impact that this could

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Speaker 1: have on the competitiveness of Chile, especially when considering that

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Speaker 1: Chile is a very highly opened economy and that it

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Speaker 1: is it's a competitiveness relative to the world, to the

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Speaker 1: rest of the world is a key component of the

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Speaker 1: positive growth in the economy. It's not just Chile. I mean,

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Speaker 1: if you look around the region, there's protests bursting out

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Speaker 1: all over. We've seen in Bolivia, Colombia, Ecuador. Venezuela obviously

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Speaker 1: has been in meltdown for quite a while. And I

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Speaker 1: noticed that you you took a look um with Adriana Jupiter,

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Speaker 1: who's our Argentina and Brazil economists at the regional picture

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Speaker 1: on protests and how to think about how one might

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Speaker 1: assess the risk in different countries of protests breaking out

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Speaker 1: in the future. Can you can you tell us a

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Speaker 1: bit about that? Sure? So there were in different countries

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Speaker 1: different reasons for the protests, but what we saw is

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Speaker 1: that they share a lot of the same problems. So

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Speaker 1: in equality, it's not a problem only in Chile, it's

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Speaker 1: also a problem in the rest of the region. The

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Speaker 1: need for fiscal titaning measures. It's not just something that

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Speaker 1: is now at the center of the debate in equal or.

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Speaker 1: It's also part of the debate economic debating the rest

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Speaker 1: of the region, and the political noise in both Bolivia

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Speaker 1: and Colombia. I think this is just evidence of the

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Speaker 1: problems regarding governance that we continue to see again not

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Speaker 1: only in these two fries, but in most of Latin America,

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Speaker 1: which basically helps to explain why you have these UH

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Speaker 1: these episodes of unrest and and the protest breaking up

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Speaker 1: for this is that for almost fifteen years between two

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Speaker 1: in the region, and that very strong growth in the

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Speaker 1: region helped to achieve or deliver some progress in terms

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Speaker 1: of social indicators. That very strong economic growth but was

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Speaker 1: written mainly by very favorable external conditions, bolstered by strong

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Speaker 1: growth from China, high commodity prices, and a steady decline

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Speaker 1: in global monetary policy interest rates sarvice. Alt of these

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Speaker 1: favorable environment and strong economic growth, governments during these period

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Speaker 1: over the last five years, the external environment has been

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Speaker 1: less favorable. That has had a negative impact on economic

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Speaker 1: growth in the region. And what we have seen is

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Speaker 1: that in the last five years, this progress in social

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Speaker 1: have seen some deterioration. So the people in these countries,

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Speaker 1: after fifteen years of progress, they are seeing no progress.

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Speaker 1: In some cases, they are losing some of the progress made.

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Speaker 1: And now that you have a bigger middle income class,

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Speaker 1: this is uh people that are getting used to make

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Speaker 1: more demands and want better services and and but there

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Speaker 1: better attention from from the government and under governors. And

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Speaker 1: when people talk about South America and particularly people and

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Speaker 1: thinking about the economic side of things, they tend to

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Speaker 1: focus on Argentina, Brazil and Brazil. You know they face

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Speaker 1: they face some of the same problems. They have both

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Speaker 1: relatively recently had elections. Do you think there's a risk

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Speaker 1: in either of those countries that even these quite new

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Speaker 1: governments will face the kind of unrest we've seen, particularly

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Speaker 1: maybe in Argentina. Ah, the answer is yes, there's definitely

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Speaker 1: a risk for it for Argentina, Brazil, and I will

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Speaker 1: also say Mexico as well to be included, and we

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Speaker 1: cannot rule out that they could eventually see some some

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Speaker 1: of this unrest as well. The main reason is that,

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Speaker 1: as I mentioned before, they pretty much share most of

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Speaker 1: the problems that triggered the protests in Chile. They also

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Speaker 1: are facing decelerating economic growth. Actually Mexico now in recession.

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Speaker 1: And this is something that we looked into in the

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Speaker 1: piece that we wrote with Adriana, is that what why

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Speaker 1: have we not seen protests in Argentina, Brazil and Mexico.

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Speaker 1: And the main reason, at least one of the explanation

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Speaker 1: that we could came up with, is that we recently

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Speaker 1: saw elections in all of these In these three countries,

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Speaker 1: the presidents that were elected or the results of these

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Speaker 1: elections provided a significant political change from the from the

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Speaker 1: previous government. And in the case of Mexico and Brazil,

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Speaker 1: the current presidents have been sitting in office for less

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Speaker 1: than a year, so they are relatively new and they

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Speaker 1: are still like in like a honeymoon period. That reduces

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Speaker 1: the amount of pressure, that of political or popular pressure

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Speaker 1: that they can under. So people think they've successfully voted

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Speaker 1: for something different, and now they're going to wait and

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Speaker 1: see if they get it. Reminds me of somewhere else,

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Speaker 1: not a million miles away from from where I am now.

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Speaker 1: Philip Bernandez, thanks very much for joining us. Thank you

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Speaker 1: for invading. So we just have time for the very

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Speaker 1: latest on the trade wars to keep you happy as

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Speaker 1: you go into the holiday season. Or is there still

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Speaker 1: a trade war? Is it over? You could take a

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Speaker 1: number of views on that on the basis of President

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Speaker 1: Donald Trump's tweets in the last week. Brendan Murray, our

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Speaker 1: long suffering trades are is here? Brendan, what's going on? Well,

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Speaker 1: I wouldn't say the trade wars are over, but let's

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Speaker 1: just say both sides called a time out and agreed

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Speaker 1: to go back to their corners and carry on, both

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Speaker 1: sides being US and China exactly. So, what the US

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Speaker 1: announced just a couple of days ago was was a

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Speaker 1: deal in principle with China that consists of a couple

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Speaker 1: of things. The Beijing has promised to purchase some two

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Speaker 1: hundred billion dollars worth of American products over the next

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Speaker 1: couple of years. A lot of that agriculture and and

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Speaker 1: President Trump conceded that he would roll back some tariffs.

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Speaker 1: So we've got both sides kind of giving in but

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Speaker 1: agreeing basically to put off the really tough issues where

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Speaker 1: they couldn't come together for a later round, a phase two.

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Speaker 1: They're calling this one phase one, and the next step

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Speaker 1: where they would address some of the more the deeper

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Speaker 1: structural issues with Chinese economy down the road. Now, that

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Speaker 1: could be a year from now, could be two years

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Speaker 1: from now, who knows, but it's it's a pretty safe

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Speaker 1: bet that the that the trade wars are going to

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Speaker 1: kind of drag on for months, if night years. Well,

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Speaker 1: I was going to say that I would miss talking

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Speaker 1: to you about the trade wars, but I don't think

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Speaker 1: I have to worry about that anytime soon. I mean,

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Speaker 1: we should say about the timing of this, that the

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Speaker 1: announcement of the deal came just a couple of days

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Speaker 1: before you would have had that imposition of the next

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Speaker 1: round of of tariffs on China, which actually our economists

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Speaker 1: had pointed out would be much much more damaging and

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Speaker 1: affect a lot more US companies than the previous tariffs.

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Speaker 1: So I guess there was a reason for Donald Trump

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Speaker 1: to come up with something um. But just to be clear,

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Speaker 1: there's still going to be a lot of tariffs in

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Speaker 1: place for the foreseeable future. There what are the other

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Speaker 1: question marks about this phase one deal before we even

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Speaker 1: get to the Phase two. Absolutely, there's there still remains

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Speaker 1: tariff on two hundred and fifty billion dollars worth of

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Speaker 1: Chinese products and and teariffs on another hundred and thirty

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Speaker 1: billion or so. So we're still looking at, you know,

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Speaker 1: the US ex imposing a fair amount of leverage on China. UM.

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Speaker 1: The big question then is whether the threat of those

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Speaker 1: tariffs is wielded over China going into at the end

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Speaker 1: of Phase one and inter phase two. Is this is

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Speaker 1: it a threat that just could keep coming up over

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Speaker 1: and over again as they try to work through those

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Speaker 1: tougher issues. So the tariffs that are currently in play

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Speaker 1: aren't going anywhere for the foreseeable future, and you know,

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Speaker 1: that will continue to put economic pressure on China to

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Speaker 1: you know, to come back to the table again and again.

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Speaker 1: As if the US it continues to press press these issues.

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Speaker 1: That's the economic prism that we're looking through. The political

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Speaker 1: prism is Trump heading into his election next November, you know,

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Speaker 1: wants to deliver the goods for the for the farmers

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Speaker 1: in the Midwest to you know, many of them who

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Speaker 1: will vote for him, And so there there are economic

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Speaker 1: costs and benefits and political costs and benefits here. And

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Speaker 1: we've we've talked about in the past that it probably

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Speaker 1: if your president Trump, your ideal is something that you

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Speaker 1: can say is more than any other president would have achieved,

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Speaker 1: but not so much that you have to stop complaining

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Speaker 1: about China and you can still bang the drum. So

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Speaker 1: I guess in that sense it's kind of perfect for him.

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Speaker 1: But what I'm hearing is that we're not going to

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Speaker 1: get a Phase two anytime soon. It's really unlikely, at

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Speaker 1: least the experts that we talked to to see, uh,

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Speaker 1: you know, these bigger issues that they need to deal

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Speaker 1: with um being hashed out in an election year. Being

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Speaker 1: tough on China is does sell well with the American public,

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Speaker 1: both Democrats and Republicans, But the Chinese understand the political

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Speaker 1: timetable as well, and so their their strategy has largely

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Speaker 1: been to kind of stall, drag their feet and see,

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Speaker 1: if you know, the political pressure outweighs the economic costs

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Speaker 1: and and leaves Donald Trump trying to focus on these

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Speaker 1: other issues we are speaking today when when he's the

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Speaker 1: House is taking up his impeachment. Uh, quite a distraction.

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Speaker 1: And we have before you even think about that, we

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Speaker 1: do have this other issue and that has been resolved.

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Speaker 1: You know, we should say, if you like the other

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Speaker 1: the other side of trade wars that was opened up

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Speaker 1: when President Trump came in, which was the renegotiation of NAFTA.

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Speaker 1: UM that has gone through in the in the same

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Speaker 1: week or at least we've got agreement with the Democrats

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Speaker 1: on that new deal. You know, I guess the obvious

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Speaker 1: question is if we've got if if the President would

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Speaker 1: say that NAPA to the North American trade with Canada

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Speaker 1: and Mexico that he complained about has been sorted and

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Speaker 1: there's at least a truce on the situation with China.

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Speaker 1: Is Europe next? According to the U S Trade Representative

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Speaker 1: Bob Lighthouser, he's setting his sights on that big trade

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Speaker 1: imbalance with with the European Union next year. It's you

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Speaker 1: know something that um. You know, the President Trumps has

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Speaker 1: complained about a lot. He he calls Europe even worse

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Speaker 1: than China when it comes to dealing with on with

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Speaker 1: the trading relationship, and there are threats of tarrass on

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Speaker 1: auto imports which would hit Germany very hard, France and

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Speaker 1: the UK to a large extent as well. So the

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Speaker 1: the ever present threat of tariffs pointed at China to

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Speaker 1: date is you know, going to be pointed in the

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Speaker 1: direction of Europe next coming to shows now you well,

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Speaker 1: thank you very much. I'm sure we will be talking

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Speaker 1: about that in the new year. Brenda mind thanks for

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Speaker 1: listening to Stephanomics. We'll be back next week with an

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Speaker 1: extra special Christmas episode featuring yet another Nobel Prize winner

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Speaker 1: in conversation and a particular take on the holiday season

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Speaker 1: from Vietnam. In the meantime, you can find us on

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Speaker 1: the Bloomberg Terminal website, app or wherever you get your podcasts,

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Speaker 1: and we'd love it if you took the time to

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Speaker 1: rate and review our show. For more news and analysis

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Speaker 1: from Bloomberg Economics, follow at Economics on Twitter. You can

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Speaker 1: also find me on at my Stephanomics. The story in

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Speaker 1: this episode was written and reported by Eduardo Thompson with

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Speaker 1: assistance from Maria Jose Campagnion. It was edited by Bruce

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Speaker 1: Douglas and produced by Magnus Hendrickson. Special thanks to Philippe Hernandez,

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Speaker 1: Brendan Murray, Rodrigo Ramirez, and Solida Saldalla. Scott Lamman is

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Speaker 1: the executive producer of Stephanomics and the head of Bloomberg

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Speaker 1: Podcast is Francesca Levi.