Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the
Speaker 1: global economy to you now. People have different associations with
Speaker 1: the South American country of Chile. For older listeners, it
Speaker 1: make under our images of the dictator Augusto Pinochet. For others,
Speaker 1: it's probably Chilean merlot or maybe the odd copper mine.
Speaker 1: But one thing almost everyone knows is that Chile and
Speaker 1: its economy are stable in a region full of countries
Speaker 1: that are not. The violent protests in Chile since October
Speaker 1: have turned that reputation on its head. Demonstrators demanding a
Speaker 1: more equal society have clashed with police, and the unrest
Speaker 1: has sometimes tipped over into looting and vandalism that more
Speaker 1: than twenty people have died, hundreds have been wounded, and
Speaker 1: thousands thrown into jail, and there have been plenty of
Speaker 1: accusations of human rights abuses. So the billionaire president Sebastian
Speaker 1: Pinera was caught off guard at the beginning and fumbled
Speaker 1: his response. He said that Chile was at war, which
Speaker 1: enraged the protesters. Then he backtracked and has now promised
Speaker 1: lots of social projects to bring the demonstrators around. In
Speaker 1: a minute, I'm going to ask one of Bloomberg's Latin
Speaker 1: American economist, Philippi Hernandez, whether the protests have put Chile's
Speaker 1: long term stability at risk and whether they shed light
Speaker 1: on the challenges facing new governments in Argentina and Brazil.
Speaker 1: I'm also going to catch up with our trades are
Speaker 1: Brenda Murray on the latest truce in the US China
Speaker 1: trade war. But first, here's Bloomberg Santiago Bureau chief Eduardo
Speaker 1: Thompson on the roots of the economics and social crisis
Speaker 1: in Chile and where the country goes from here. Understand
Speaker 1: Chile need to know about Plas Italia, a wide roundabout
Speaker 1: that marks the dividing line between the upscale neighborhood of
Speaker 1: Providencia in the district of Santiago Center, the home of
Speaker 1: government offices. Every time the national soccer team wins, crowds
Speaker 1: gather there to sing and celebrate. It's also a magnet
Speaker 1: for political protests. In a way, it's a local version
Speaker 1: of Washington's National Mall, with wide avenues and parks along
Speaker 1: the border of the Mapucha River. It's also an invisible
Speaker 1: boundary the Place Italia Barria or on up from Place
Speaker 1: Italia is where the wealthy live in Santiago's northeastern districts.
Speaker 1: Nail Italia. We're never gone down. Best place Italia means
Speaker 1: someone who has never seen the real world, and by
Speaker 1: real world we mean in downtown, where most of the
Speaker 1: people that feel left behind from Chile's economic progress live.
Speaker 1: Las Italia is the ground zero of the Protestant Chile
Speaker 1: that started in October. Layers and layers of graffiti now
Speaker 1: cover the statues honoring past wars, while metal or ward
Speaker 1: barriers surround the area's stores. A few brave shopkeepers have
Speaker 1: put ups paper signs saying they're still open. Many have
Speaker 1: closed for good. On a sunny and hot Monday, I
Speaker 1: met with a twenty four year old woman named Tad Flories.
Speaker 1: All around, college age men their faces covered behind masks,
Speaker 1: directed traffic and set off fire extinguishers. Women near the
Speaker 1: main statues were doing a topless feminist performance against sexual violence.
Speaker 1: Police were nowhere to be seen ever since they started
Speaker 1: be coming here to protest. But I get out of it,
Speaker 1: turns to violet and there's police repression and protest him
Speaker 1: because of the bad quality of public health and pensions.
Speaker 1: Pensions are just too like the addition, know about this,
Speaker 1: she works at a private clinic that attends to the
Speaker 1: rich those that live uptown from Plas Italia. This invisible
Speaker 1: boundary in Plas Italia also inspired David Vargas to protest.
Speaker 1: Every Friday. After the thirty eight year old technician completes
Speaker 1: his shift working in the back office of a credit
Speaker 1: card company in the swanky neighborhood of Nova Las Condes,
Speaker 1: he heads out here to join the protests. I came
Speaker 1: to work one day at Glas Conges after it all began,
Speaker 1: and that is what angered me the most. The place
Speaker 1: was packed with soldiers. They were guarding everything when absolutely
Speaker 1: nothing had happened. But if it went downtown or rather
Speaker 1: places in Santiago, it was pure chaos. They just guarded
Speaker 1: from Plas Italia to the rich neighborhoods. Very That's how
Speaker 1: it was, and you can still see that today and
Speaker 1: David are part of chillis rising middle class. Both have
Speaker 1: professional degrees. David, for example, comes from a poor family.
Speaker 1: His father, a former factory worker, collects a monthly disability
Speaker 1: pension equivalent to about hundred dollars. David's mother worked her
Speaker 1: whole life cleaning houses to put food on the table
Speaker 1: for him and his family. I'm protesting mostly because of
Speaker 1: the pensions, and to emphasize because right now I have
Speaker 1: privileges that many don't have. I know what it is
Speaker 1: to live in a poor neighbor. I know what it
Speaker 1: is to wait for eight hours at public hospitals for service.
Speaker 1: I know what it means that the elderly received extremely
Speaker 1: low pensions and don't have enough to leave or to
Speaker 1: buy food. A few blocks down from plass Italian is
Speaker 1: where the whole mess started. In a subway station called Chile.
Speaker 1: Early in October, students began to plot massive ticket evasions,
Speaker 1: first in New York City Chile and then in other stations,
Speaker 1: sparked by a fair increase of thirty vessels or four cents.
Speaker 1: Things got nasty fast. Police special forces clashed with the protesters.
Speaker 1: Acts of vandalism started and culminated on the night of
Speaker 1: October eighteen, when unidentified groups set stations on fire. Protests
Speaker 1: continued and morphed into the biggest social unrest since the
Speaker 1: dictatorship of Augusto Pinochet. The message was clear. The neglected
Speaker 1: lower and middle class in South America's richest country was mad,
Speaker 1: very mad. Outside of the iconic station in downtown Santiago.
Speaker 1: I met with Claudiaquentis, a professor of political science from
Speaker 1: the New Year City, Diego Portalis. He has been following
Speaker 1: social protests for a long time, but the violence of
Speaker 1: the protests took him by surprise. The people are very,
Speaker 1: very upset against political parties, against the business community abusing powers.
Speaker 1: So this is at two sides, a conflict related to
Speaker 1: social demands and the abuse of power of the lead.
Speaker 1: Although at the time of this recording, the intensity of
Speaker 1: the protests seems to have subsided, the damage to the
Speaker 1: social fabric of Chile and it's once growing economy is undeniable.
Speaker 1: The Central Bank has warned that if the economy doesn't
Speaker 1: get back on track, unemployment can jump to more than
Speaker 1: ten pc. The bisto has had the worst performance of
Speaker 1: any emergent market currency in the period. Getting out of
Speaker 1: this will require lot of spending and a lot of
Speaker 1: soul searching around what led the country there. I think
Speaker 1: that also makes it extremely difficult to handle that this
Speaker 1: is domestically created. Most of the crisis that we have
Speaker 1: had Asian crisis, the global finance crisis were extended crisis
Speaker 1: that is dean of the New Yar City, Chile School
Speaker 1: of Economics and former governor of Chile Central Bank during
Speaker 1: the financial crisis. He says that though income inequality figures
Speaker 1: have improved and poverty has fallen, it hasn't been enough.
Speaker 1: All they the munity developments and poor people housing was
Speaker 1: down in the In the baphory of the of the
Speaker 1: city we create not get as well, but the extremely
Speaker 1: dissegregated city, so you are very high inca where if
Speaker 1: you have middle or low income living different helps. Getting
Speaker 1: out of this crisis won't be easy for President Pineta.
Speaker 1: He has promised the five point five billion package of
Speaker 1: social measures, and the country will issue more dead and
Speaker 1: spend part of its savings. There's also a promise of
Speaker 1: a new constitution vote next April, but political parties have
Speaker 1: stalled discussing the details of the process, and for people
Speaker 1: such as David Vargas, it isn't the solution. He wants
Speaker 1: to see the video. I meant anything. The most important
Speaker 1: measure is that the president should resign because he has
Speaker 1: shown that he won't bring peace. Neither will political parties.
Speaker 1: They set up a show and say we've signed a
Speaker 1: peace agreement, but they don't see that people are protesting
Speaker 1: because they don't believe in competitions that may be seen
Speaker 1: as too extreme. But political scientists Cloudy Afuentes says that
Speaker 1: a major change is long overdue, need to change forever,
Speaker 1: because the previous let's say CONSENSUV and its stabilty was artificial.
Speaker 1: It was like a time em bomb in which where
Speaker 1: pressuring force certain issues. And I think that if we
Speaker 1: don't change the way society is set up, we might
Speaker 1: have another explosion in thirty years, in twenty years. It's
Speaker 1: a lesson that other Latin American countries are paying careful
Speaker 1: attention to. When similar protests began in Colombia, the government
Speaker 1: of Van Duke quickly set up talks with unions and
Speaker 1: social groups to diffuse the tention, While the government of
Speaker 1: Jai Bolsonado in Brazil has taken the foot off the
Speaker 1: gas of its markets reform agenda. It remains to be
Speaker 1: seen if the reforms in Chile or elsewhere will be
Speaker 1: enough to avoid another flare up of the violence. For
Speaker 1: Bloomberg News, I'm Edward or Thompson. So I'm I'm joined
Speaker 1: now by Phelipp Fernandez in New York, who covers Mexico, Chile,
Speaker 1: and a bunch of other countries in Latin America for
Speaker 1: Bloomberg Economics. Philippe, thanks for coming on Stephonomics. Thank you
Speaker 1: for inviting me, Stephanie. We just listened to that piece
Speaker 1: from Eduardo, and you know, I guess the question is
Speaker 1: does this does this unrest actually put Chile's really long
Speaker 1: reputation for economic and political stability at risk? I mean,
Speaker 1: is this is that the Chilean economic model, such as
Speaker 1: it is, is it is it fundamentally under threat now?
Speaker 1: Or are these protests something that are likely to fade.
Speaker 1: The short answer to your question is that yes, indeed,
Speaker 1: all of these unrest has raised some risks for the
Speaker 1: for the Chilean economy and the view, the consensus view
Speaker 1: of a sterile Chile. What the policymakers have to understand
Speaker 1: is that in terms of what changes are REQUI fired,
Speaker 1: they must keep in mind or try to make sure
Speaker 1: that what has been working well for Chile is maintained.
Speaker 1: Some good examples of this is that they you now
Speaker 1: have a very credible and independent central bank, which has
Speaker 1: helped to keep a low and stable inflation, responsible and
Speaker 1: sustainable fiscal policy and the overall conditions that have allowed
Speaker 1: Chile to enjoy relatively stable and positive economic growth. Now,
Speaker 1: there were some things that were not working in Chile.
Speaker 1: When you look at the different indicators, you find that
Speaker 1: despite all of these things that I mentioned before, there's
Speaker 1: a still high income inequality in Chile. There were limited
Speaker 1: redistribution policies and low social mobility in part due to
Speaker 1: limited taxes to high quality education. And any new arrangement
Speaker 1: that comes out as a result of the of these
Speaker 1: changes must be sustainable in the long term, and by
Speaker 1: this I mean at any any fiscal policy measures that
Speaker 1: result in higher public cector expenditure will have to be
Speaker 1: upset by the government finding news sources of of revenues,
Speaker 1: and for the economy as a whole, of course, this
Speaker 1: probably will imply higher taxes. Any decisions in terms of
Speaker 1: increasing wages or pensions that could result in higher costs
Speaker 1: for the for the productive sector will all have to
Speaker 1: be carefully weighted against the negative impact that this could
Speaker 1: have on the competitiveness of Chile, especially when considering that
Speaker 1: Chile is a very highly opened economy and that it
Speaker 1: is it's a competitiveness relative to the world, to the
Speaker 1: rest of the world is a key component of the
Speaker 1: positive growth in the economy. It's not just Chile. I mean,
Speaker 1: if you look around the region, there's protests bursting out
Speaker 1: all over. We've seen in Bolivia, Colombia, Ecuador. Venezuela obviously
Speaker 1: has been in meltdown for quite a while. And I
Speaker 1: noticed that you you took a look um with Adriana Jupiter,
Speaker 1: who's our Argentina and Brazil economists at the regional picture
Speaker 1: on protests and how to think about how one might
Speaker 1: assess the risk in different countries of protests breaking out
Speaker 1: in the future. Can you can you tell us a
Speaker 1: bit about that? Sure? So there were in different countries
Speaker 1: different reasons for the protests, but what we saw is
Speaker 1: that they share a lot of the same problems. So
Speaker 1: in equality, it's not a problem only in Chile, it's
Speaker 1: also a problem in the rest of the region. The
Speaker 1: need for fiscal titaning measures. It's not just something that
Speaker 1: is now at the center of the debate in equal or.
Speaker 1: It's also part of the debate economic debating the rest
Speaker 1: of the region, and the political noise in both Bolivia
Speaker 1: and Colombia. I think this is just evidence of the
Speaker 1: problems regarding governance that we continue to see again not
Speaker 1: only in these two fries, but in most of Latin America,
Speaker 1: which basically helps to explain why you have these UH
Speaker 1: these episodes of unrest and and the protest breaking up
Speaker 1: pretty much at the same time everywhere. Now, all of
Speaker 1: these problems that I mentioned before, they are really not new,
Speaker 1: but have recently become more note noticeable. The main reason
Speaker 1: for this is that for almost fifteen years between two
Speaker 1: thousand and two thousand fifteen, you had very strong growth
Speaker 1: in the region, and that very strong growth in the
Speaker 1: region helped to achieve or deliver some progress in terms
Speaker 1: of social indicators. That very strong economic growth but was
Speaker 1: written mainly by very favorable external conditions, bolstered by strong
Speaker 1: growth from China, high commodity prices, and a steady decline
Speaker 1: in global monetary policy interest rates sarvice. Alt of these
Speaker 1: favorable environment and strong economic growth, governments during these period
Speaker 1: had a significant amount of resources to expand government programs
Speaker 1: to aid the lower and middle income classes. We saw
Speaker 1: very successful and the programs of cash transfers from the
Speaker 1: public sector to to to these UH minorities, and we
Speaker 1: did saw a red significant reduction in the levels of
Speaker 1: poverty and in some countries some improvement in inequality measures. However,
Speaker 1: over the last five years, the external environment has been
Speaker 1: less favorable. That has had a negative impact on economic
Speaker 1: growth in the region. And what we have seen is
Speaker 1: that in the last five years, this progress in social
Speaker 1: indicators has pretty much stalled, and in some cases we
Speaker 1: have seen some deterioration. So the people in these countries,
Speaker 1: after fifteen years of progress, they are seeing no progress.
Speaker 1: In some cases, they are losing some of the progress made.
Speaker 1: And now that you have a bigger middle income class,
Speaker 1: this is uh people that are getting used to make
Speaker 1: more demands and want better services and and but there
Speaker 1: better attention from from the government and under governors. And
Speaker 1: when people talk about South America and particularly people and
Speaker 1: thinking about the economic side of things, they tend to
Speaker 1: focus on Argentina, Brazil and Brazil. You know they face
Speaker 1: they face some of the same problems. They have both
Speaker 1: relatively recently had elections. Do you think there's a risk
Speaker 1: in either of those countries that even these quite new
Speaker 1: governments will face the kind of unrest we've seen, particularly
Speaker 1: maybe in Argentina. Ah, the answer is yes, there's definitely
Speaker 1: a risk for it for Argentina, Brazil, and I will
Speaker 1: also say Mexico as well to be included, and we
Speaker 1: cannot rule out that they could eventually see some some
Speaker 1: of this unrest as well. The main reason is that,
Speaker 1: as I mentioned before, they pretty much share most of
Speaker 1: the problems that triggered the protests in Chile. They also
Speaker 1: are facing decelerating economic growth. Actually Mexico now in recession.
Speaker 1: And this is something that we looked into in the
Speaker 1: piece that we wrote with Adriana, is that what why
Speaker 1: have we not seen protests in Argentina, Brazil and Mexico.
Speaker 1: And the main reason, at least one of the explanation
Speaker 1: that we could came up with, is that we recently
Speaker 1: saw elections in all of these In these three countries,
Speaker 1: the presidents that were elected or the results of these
Speaker 1: elections provided a significant political change from the from the
Speaker 1: previous government. And in the case of Mexico and Brazil,
Speaker 1: the current presidents have been sitting in office for less
Speaker 1: than a year, so they are relatively new and they
Speaker 1: are still like in like a honeymoon period. That reduces
Speaker 1: the amount of pressure, that of political or popular pressure
Speaker 1: that they can under. So people think they've successfully voted
Speaker 1: for something different, and now they're going to wait and
Speaker 1: see if they get it. Reminds me of somewhere else,
Speaker 1: not a million miles away from from where I am now.
Speaker 1: Philip Bernandez, thanks very much for joining us. Thank you
Speaker 1: for invading. So we just have time for the very
Speaker 1: latest on the trade wars to keep you happy as
Speaker 1: you go into the holiday season. Or is there still
Speaker 1: a trade war? Is it over? You could take a
Speaker 1: number of views on that on the basis of President
Speaker 1: Donald Trump's tweets in the last week. Brendan Murray, our
Speaker 1: long suffering trades are is here? Brendan, what's going on? Well,
Speaker 1: I wouldn't say the trade wars are over, but let's
Speaker 1: just say both sides called a time out and agreed
Speaker 1: to go back to their corners and carry on, both
Speaker 1: sides being US and China exactly. So, what the US
Speaker 1: announced just a couple of days ago was was a
Speaker 1: deal in principle with China that consists of a couple
Speaker 1: of things. The Beijing has promised to purchase some two
Speaker 1: hundred billion dollars worth of American products over the next
Speaker 1: couple of years. A lot of that agriculture and and
Speaker 1: President Trump conceded that he would roll back some tariffs.
Speaker 1: So we've got both sides kind of giving in but
Speaker 1: agreeing basically to put off the really tough issues where
Speaker 1: they couldn't come together for a later round, a phase two.
Speaker 1: They're calling this one phase one, and the next step
Speaker 1: where they would address some of the more the deeper
Speaker 1: structural issues with Chinese economy down the road. Now, that
Speaker 1: could be a year from now, could be two years
Speaker 1: from now, who knows, but it's it's a pretty safe
Speaker 1: bet that the that the trade wars are going to
Speaker 1: kind of drag on for months, if night years. Well,
Speaker 1: I was going to say that I would miss talking
Speaker 1: to you about the trade wars, but I don't think
Speaker 1: I have to worry about that anytime soon. I mean,
Speaker 1: we should say about the timing of this, that the
Speaker 1: announcement of the deal came just a couple of days
Speaker 1: before you would have had that imposition of the next
Speaker 1: round of of tariffs on China, which actually our economists
Speaker 1: had pointed out would be much much more damaging and
Speaker 1: affect a lot more US companies than the previous tariffs.
Speaker 1: So I guess there was a reason for Donald Trump
Speaker 1: to come up with something um. But just to be clear,
Speaker 1: there's still going to be a lot of tariffs in
Speaker 1: place for the foreseeable future. There what are the other
Speaker 1: question marks about this phase one deal before we even
Speaker 1: get to the Phase two. Absolutely, there's there still remains
Speaker 1: tariff on two hundred and fifty billion dollars worth of
Speaker 1: Chinese products and and teariffs on another hundred and thirty
Speaker 1: billion or so. So we're still looking at, you know,
Speaker 1: the US ex imposing a fair amount of leverage on China. UM.
Speaker 1: The big question then is whether the threat of those
Speaker 1: tariffs is wielded over China going into at the end
Speaker 1: of Phase one and inter phase two. Is this is
Speaker 1: it a threat that just could keep coming up over
Speaker 1: and over again as they try to work through those
Speaker 1: tougher issues. So the tariffs that are currently in play
Speaker 1: aren't going anywhere for the foreseeable future, and you know,
Speaker 1: that will continue to put economic pressure on China to
Speaker 1: you know, to come back to the table again and again.
Speaker 1: As if the US it continues to press press these issues.
Speaker 1: That's the economic prism that we're looking through. The political
Speaker 1: prism is Trump heading into his election next November, you know,
Speaker 1: wants to deliver the goods for the for the farmers
Speaker 1: in the Midwest to you know, many of them who
Speaker 1: will vote for him, And so there there are economic
Speaker 1: costs and benefits and political costs and benefits here. And
Speaker 1: we've we've talked about in the past that it probably
Speaker 1: if your president Trump, your ideal is something that you
Speaker 1: can say is more than any other president would have achieved,
Speaker 1: but not so much that you have to stop complaining
Speaker 1: about China and you can still bang the drum. So
Speaker 1: I guess in that sense it's kind of perfect for him.
Speaker 1: But what I'm hearing is that we're not going to
Speaker 1: get a Phase two anytime soon. It's really unlikely, at
Speaker 1: least the experts that we talked to to see, uh,
Speaker 1: you know, these bigger issues that they need to deal
Speaker 1: with um being hashed out in an election year. Being
Speaker 1: tough on China is does sell well with the American public,
Speaker 1: both Democrats and Republicans, But the Chinese understand the political
Speaker 1: timetable as well, and so their their strategy has largely
Speaker 1: been to kind of stall, drag their feet and see,
Speaker 1: if you know, the political pressure outweighs the economic costs
Speaker 1: and and leaves Donald Trump trying to focus on these
Speaker 1: other issues we are speaking today when when he's the
Speaker 1: House is taking up his impeachment. Uh, quite a distraction.
Speaker 1: And we have before you even think about that, we
Speaker 1: do have this other issue and that has been resolved.
Speaker 1: You know, we should say, if you like the other
Speaker 1: the other side of trade wars that was opened up
Speaker 1: when President Trump came in, which was the renegotiation of NAFTA.
Speaker 1: UM that has gone through in the in the same
Speaker 1: week or at least we've got agreement with the Democrats
Speaker 1: on that new deal. You know, I guess the obvious
Speaker 1: question is if we've got if if the President would
Speaker 1: say that NAPA to the North American trade with Canada
Speaker 1: and Mexico that he complained about has been sorted and
Speaker 1: there's at least a truce on the situation with China.
Speaker 1: Is Europe next? According to the U S Trade Representative
Speaker 1: Bob Lighthouser, he's setting his sights on that big trade
Speaker 1: imbalance with with the European Union next year. It's you
Speaker 1: know something that um. You know, the President Trumps has
Speaker 1: complained about a lot. He he calls Europe even worse
Speaker 1: than China when it comes to dealing with on with
Speaker 1: the trading relationship, and there are threats of tarrass on
Speaker 1: auto imports which would hit Germany very hard, France and
Speaker 1: the UK to a large extent as well. So the
Speaker 1: the ever present threat of tariffs pointed at China to
Speaker 1: date is you know, going to be pointed in the
Speaker 1: direction of Europe next coming to shows now you well,
Speaker 1: thank you very much. I'm sure we will be talking
Speaker 1: about that in the new year. Brenda mind thanks for
Speaker 1: listening to Stephanomics. We'll be back next week with an
Speaker 1: extra special Christmas episode featuring yet another Nobel Prize winner
Speaker 1: in conversation and a particular take on the holiday season
Speaker 1: from Vietnam. In the meantime, you can find us on
Speaker 1: the Bloomberg Terminal website, app or wherever you get your podcasts,
Speaker 1: and we'd love it if you took the time to
Speaker 1: rate and review our show. For more news and analysis
Speaker 1: from Bloomberg Economics, follow at Economics on Twitter. You can
Speaker 1: also find me on at my Stephanomics. The story in
Speaker 1: this episode was written and reported by Eduardo Thompson with
Speaker 1: assistance from Maria Jose Campagnion. It was edited by Bruce
Speaker 1: Douglas and produced by Magnus Hendrickson. Special thanks to Philippe Hernandez,
Speaker 1: Brendan Murray, Rodrigo Ramirez, and Solida Saldalla. Scott Lamman is
Speaker 1: the executive producer of Stephanomics and the head of Bloomberg
Speaker 1: Podcast is Francesca Levi.