MercoPress. South Atlantic News Agency

Inflation and union woes dog Chile's Bachelet

Nothing seems to be going right for Chile's Pte. Bachelet

Inflation, the weak link in her country's buoyant economy, is at a six-year high. Unions, the natural partners of her leftwing government, marched through Santiago in August protesting against free-market policies they say are fuelling inequality.

A policeman was killed after youths battled with riot police on the anniversary of Chile's 1973 military coup. And commuters can expect months more of problems from Transantiago, a new transport system that has brought chaos to the capital. Approval ratings for Chile's first female leader have fallen by a third to 39 per cent since she took office in March last year, according to a new poll by Adimark GFK – well below the almost 43 per cent who say they disapprove of her. And that survey was conducted before the union rally and street riots in which more than 750 people were arrested in clashes with police. Ms Bachelet says she is being judged too harshly, too soon. The images of rampaging youths battling with police after the September 11 coup anniversary – when protests are common – contributed to a distorted image, making it "look like Chile is falling apart", she told the Financial Times. "This isn't a rising trend," she said of the protests, which have led to bad press at home and abroad. She has defended unions' rights to air their criticisms of the free-market model introduced during the late General Augusto Pinochet's 17-year regime, but counters that unemployment is at its lowest for nine years and she is delivering social justice via initiatives such as a sweeping pensions reform she hopes will become law by early next year. Meanwhile, Asian demand has delivered booming revenues from copper, of which Chile is the world's top producer, and the economy has picked up. It grew at 6.1 per cent in the second quarter, its fastest for two years, well above 2006 growth of 4 per cent, although economic expansion slowed between June and July. However, annual inflation rose to 4.7 per cent in August, and last week prompted the central bank to raise its benchmark lending rate for the third time in three months. Ms Bachelet said the inflation uptick was largely the result of external factors such as rising milk, wheat and fuel costs, as well as cold weather that led to poor harvests. "We know part of this situation will continue and part will be resolved as warmer weather comes . . . so I'd say we're not pessimistic," she said. "We don't like inflation where it is, but we're being vigilant." Chile has scraped through an especially cold southern hemisphere winter, with severe gas cuts to electricity generators and factories after its sole natural gas supplier, Argentina, suffered an energy crisis of its own. It has so far staved off cuts to residential clients. But Ms Bachelet accepted "we'll have problems" next year if further droughts affect hydro¬electric generation. Importing gas from Boli¬via, which is rich in the resource, is hampered by a dispute over a chunk of Chilean coastline Bolivia lost in the 19th century. Diplomatic links were severed 30 years ago and any deal on granting Bolivia non-sovereign access to the Pacific would have to be approved by Peru, which has a maritime dispute of its own with Chile. Chile and Bolivia are discussing a 13-point agenda, which does not specifically include the sea issue, amid signs of a rapprochement. "I'd be very happy if Bolivia decided to [restore diplomatic relations] be¬cause Chile has always displayed full willingness and this depends on the Bolivian government," Ms Bachelet said. "What's positive is the very good relationship I have with [Bolivian] President Evo Morales, because we've been able to develop trust, but trust doesn't last for ever if we don't make progress," she added. After her own experiences with Transantiago, she knows how true that is. From 62 per cent approval shortly after taking office, her ratings were hit by student protests in her first few months. But it was the troubles of the transport system – which she admits to having launched before it was ready – that caused her public standing to plummet. Her public mea culpas,partial improvements over recent months and the government's aim to have a "decent" service by December have yet to placate indignant commuters. "After Transantiago, I'm not surprised by anything," she said. (FT)