PRESENTATION BY PRESIDENT SEBASTIÁN PIÑERA
PRESIDENT AND CEO,
AMERICAS SOCIETY/COUNCIL OF THE AMERICAS
REPUBLIC OF CHILE
September 22, 2010
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BILL RHODES: Ladies and gentlemen, damas y caballeros y buenas tardes, good afternoon, and I hope you enjoyed your lunch. For us, it’s a great honor and pleasure to welcome the president of Chile, who is an old friend of the America Society and the Council of the Americas. And many of you in this room have known the president for a number of years, so I think that even makes it more special.
In reality, the president needs no introduction. His strong commitment to his country, its people and his strong political credentials speak for themselves. He has been a leader in the private sector for many years and has been crucial in the strategic development of so many companies.
I would mention LanChile, which is one of the great companies, not only in Latin America, but one of the great airlines, I think, in the world. As you know, he served his country as an important leader in the senate. He has been very active in so many philanthropic activities in Chile, having created Fundación Futuro.
President Piñera hit the ground running, which is no surprise to those of us who know him, with the overwhelming challenges that he faced with the incredibly tough earthquake that struck that country on February 27th, 2010. If you looked at the Richter Scale of that earthquake, it was one of the highest recorded in the world in many years. While, the devastation was enormous, the earthquake recovery in Chile is truly astonishing and shows once again the determination of the Chilean people and the leadership of the president.
Please know that we at the Council of the Americas send our condolences, our support, to those who lost their lives. There are a number of people on the staff of this institution, Council of the Americas, America Society, who are Chilean, and we are here to help in any way we can, Mr. President.
We know that you’ve shown a tremendous determination not only in the work you’ve done after the earthquake, but most recently in the rescue of the miners trapped in the tragic cave-in several weeks ago. I was mentioning to the president that I just recently came back from China, which has many of these, and the story of what’s going on in Chile is being followed in the Chinese press very actively, because I think people around the world, not only in Chile, have picked this up and are following what is going on.
The president has a very ambitious agenda, which he will talk to us about today. He has promised to create more jobs, double Chile’s per capita annual income, and expand growth to six percent a year. He has also prioritized education and placed social development at the top of his agenda. President Piñera’s strong leadership and energy will assure Chile’s continued and future prosperity, just as it will the rescue of the trapped miners, and I know he will have a word to say about that.
So having said that, President, we feel honored to have you here with us today. Please give the president a hand. (Applause.) And as John Negroponte said, the president has offered to take questions.
PRESIDENT SEBASTIÁN PIÑERA: Thank you very much, Bill. Thank you very much for your kind words, Bill Rhodes, hello, Susan Segal, Mr. David Rockefeller, Ambassador Negroponte, dear friends. It’s true, the miners’ story has been a very emotional one. I have with me this message: All of us, the 33 in the shelter, are fine.
This was the first message after 18 days caught in the deep of the mountains, 2,000 feet below, in very hard rock, but I can guarantee you that we’ve done everything possible and will keep doing that. And sooner than what you expect, probably in November, we will rescue them, and that will be another really – another explosion of joy and hope, not only in Chile, because I know that this story has been followed all over the world.
Let me tell you a story. We’ve been in office only for six months, but I would like to tell you a broader story. We have had two periods in Chile. The first one, which has been called the Chile Miracle, or the fat cows period, was between ’86 and ’97. During those twelve years, we achieved a lot of goals.
First of all, we were able to grow, on average at 7.8 percent, in fiscal activity substantially, create jobs like never before, and lowered our unemployment rate. During that same period, the world was staying behind with a growth rate of only three percent and with a very high interest rate.
Unfortunately, this story of fat cows and a very golden period for our country, in that period we recovered our democracy, which is the normal way of life for the Chilean people, and we did it peacefully, wisely and based on reasoning and agreements and not on violence and violence.
Unfortunately, we were hit by the Asian crisis in 1998, and since then we have lived another 12-year period of lean cows. During this second period, the rate of growth went down by half to 3.54 percent, productivity stagnated, our creation of new jobs was reduced by half, and the unemployment rate went up. And during the same period, the world was accelerating, because the world was growing faster and we were, unfortunately, staying behind.
As you can see, while the world was – this was the first period where Chile was doubling the rate of growth of the world and was among the five fastest-growing countries in the world, but in the second period the situation changed and we were only able to grow at 3.3 percent. And this is a story that we want to change, because the main challenge that our government is facing is basically to defeat poverty and defeat underdevelopment before the end of this decade.
This is the rate of growth, percent by percent. You see, it’s going down, and we have – (laughter) – committed ourselves to recover our growing capacity. And let me tell you, it is not just a promise, because in the first year we have accomplished a terrific job. Last year, the rate of growth in Chile was minus 1.5 percent. This year, it will be close to 6 percent.
Last year, the job creation was we lost 30,000 jobs. This year, we will create 300,000 jobs. Last year, the investment effort went down by 15 percent; this year it will go up by more than 25 percent, and we could continue telling this story, but really we are living a real renaissance in our economy, which is back, and very strongly.
For that, well, we want to change this from the Chile Miracle, we went to the map, and now we want to go back to the Chile Miracle, and that won’t be easy, but it is possible. How can we do it? As I was telling you before, the first transition was to move from a military government to a democratic system, and we did it, and we did it very wisely and very successfully. Here I have a picture of President Allende and President Pinochet, which is something that many people thought they would never observe in their lives, but it happened.
And here we had the second transition, which is not from a democratic – from a military system to a democratic system, but from underdevelopment to development, from poverty to opportunities, and that is our goal. The goal of our generation, which are, we have just finished celebrating our bicentennial. Two-hundred thousand – 200 years of independent and republican life, and we want to take advantage of the spirit that was able to cross our country during our bicentennial to give us forces and guidance to achieve these goals.
Our main goal is to defeat extreme poverty within our government – that means within the next four years, and to defeat poverty before the end of the decade. At the same time, to defeat underdevelopment. Today, Chile is a country with $14,000 per capita income, and the threshold that divides the underdeveloped world from the developed world is about $22,000, which is what countries like Portugal and many other Mediterranean countries have today, and we want to achieve that goal before the end of the decade.
At the same time, defeat poverty, and for that, of course, we need to change the way we are governing our country. The commitment to a well-done job, commitment to do everything with a sense of urgency and commitment with setting goals and deadlines that people can measure according to them, and not only according to our intentions, are the main – the aspect and the main dreamed forces of our government.
We want to create a society where we will have a society of opportunities, so everybody can take advantage of their talents and get the best out of themselves, and for that, of course, we need to do many things – create jobs, improve quality of education. But at the same time, we want to have a society of guarantee, so nobody will be below the poverty line, no matter what is his or her responsibility. We want to guarantee everybody that in our country, poverty will be left behind.
I was surprised a week ago when I heard that in the U.S., there are more than 40 million people living in poverty, which is more than 10 percent of the population. Maybe we will achieve that goal before the U.S., and according to how we are moving, I think that that is possible.
And at the same time, a society of values, with the value of life, family, the value of a state of law, the value of democracy, the value of human rights is really fully respected and honored everywhere. Those are our three major goals in terms of values that will have to be behind our work.
Now, this is our first presidential cabinet, which was formed in March of this year. I remember that minutes before we took office, in the inauguration ceremony, three earthquakes hit our country, the three of them before 12 a.m., March the 11th, so it’s not our responsibility – (laughter) – it was part of the former government. And I remembered I was in Valparaiso waiting to enter that room, and then somebody came to me and said, look, we are being hit by three earthquakes. It’s an emergency call, and people are running to save their lives to the hills and the mountains.
And I was there waiting to enter the Congress, and I decided it was more important to become president than to try to save my life, and I think it was the right decision – (laughter). What we’re doing, recovering our growth capacity, and for that, I don’t want to get into details, but basically, we need to improve the human capital.
The quality of our education is key. That’s the master fight that we’ll have to win if we want really to become a developed country, and then we have a lot to do, because we have been stagnated by 20 years in terms of the quality of the education. And that’s the mother of all the fights.
And the second thing – and for that we are doing a lot of things. We are doubling our public investment in education, a huge and tremendous effort, in order to improve the quality of the education, starting with the most vulnerable, in order to at the same time create more equality of opportunities. Create 1 million jobs within the next four years. This year, we will create 300,000 jobs, so we are moving in the right direction.
Increase our investment, that went down from 29 percent of GDP to 22, and we want to go back to 29 or 30 percent in a very short period of time, and we are moving ahead because this year investment is growing by 27, 28 percent. To really promote the entrepreneurship capacity of our people, innovation, invest in technology, in productivity, and in flexibility to be able to adjust to a world that is changing, and in a very, very rapid way, are the main aspects that we would follow in order to recover our growth capacity.
And this is basically how the world and Chile have been growing. You see that normally, Chile was growing faster than the world. But during a long period of time, it was the opposite, and we are recovering that capacity to double the world capacity to grow.
And that’s very important because if we are able to do so, and we hope that we are in the right path, we will become, once again, one of the fastest growing countries in the world, the first in the OECD, among the two fastest growing countries in Latin America and also in the first division of the world ranking in this aspect.
And this is very important. This is what was expected and the real economic growth and you see that we have surprised the experts by growing much faster than what was expected. And without – without putting danger our main macroeconomic equilibrium – the inflation rate last month was negative in our country. So we are growing in a very stable and sound way, increasing basic investment and not only consumption.
So we are, in some way, we are preparing ourselves to keep growing for a long period of time in a sustainable way. And this is important because we need to create 1 million jobs in order to be able to reduce our unemployment rate, give opportunities to young people that will join the labor force and give opportunities to women that also are joining the labor force in a very rapid way.
And simultaneously, in the first four months of our government, the real salaries have risen by 2.1 percent and we have been able to create 165,000 jobs. So basically, we are really very confident that we will achieve our goal; the official goal was 250,000, I think that we will exceed 300,000 jobs this year.
And in terms of public order and safety, this is something which is very important because we have to win the war on crime and drugs. And we are doing by working very hard in four areas, prevention, which is basically to take care of people before they enter into the crime world or the drug world. And we are working very hard with young students at 10, 12 years old, before they really are caught by drugs or crime or other problems like that.
Protection – we are increasing substantially our – the number of policemen in the street protecting people. We are also trying to get to apply our laws because normally, when the laws are right but they are not applied and rehabilitation in order to give a second opportunity to everyone. And that has been very successful because we have been able to change the path – and for the first time in many, many years, crimes and drugs are going down in our country.
Here, you have some figures, victimization, fear rate and you see that for the first time, the numbers are going down, which, in terms of crime and drugs, is a very good news. At the same time, we are undertaking a huge health reform, and not only in terms of infrastructure and resources, but also in terms of management, which is a key aspect to really improve things in the health sector.
In terms of education, I was telling you we are doubling our public investment in school by subsidizing directly the students. They receive a subsidy, a monthly subsidy, and they decide to what school they want to go so they are free to choose and we just subsidized people that really need it, but we don’t take away their ability to decide whether they want to go for the education.
And we are also setting up a network of excellent high schools and getting with the digital revolution to all the corners of our country. We think that by the end of 2012, every school and every children will have a laptop available so he can join the society of knowledge and the society of information.
And also – and also in this sense, we are – we have a very ambitious task in terms of poverty. Poverty was going down in Chile for the last 20 years in a very sustainable and strong way. From 38.6 percent in 1990 to 13.7 percent in 2006. Unfortunately, we have a setback in the last three years because poverty went up again from 13.7 to 15.1, even though during that period, social expenditure.
So public social expenditure went up very substantially. So there’s a problem with it, the national economy of course, the crisis, the price of food, but also something was not being done right in our country and we are really committed to change that.
In terms of democracy, our citizen participation has been going down dramatically from 89.9 percent that participate in the first elections when we recover our democracy system to only 68 percent in the last election. And therefore, we’re undertaking a very strong form, automatic registration and voluntary balloting in order to increase the participation of people in our democratic system.
On top of this cause, of course, we’re building back what the earthquake and tsunami destroyed. At 3:34 a.m. in the morning of February 27, we were hit of the fifth worst earthquake in the known history of mankind and it was really devastating. It hit our country in the heart, in the middle of the country, where 75 percent of the population lives.
And in the next hour, many tsunamis devastated large areas, cities and towns in the central coast of Chile. These are the five highest or worst earthquakes in known history of mankind and you can see that two of them hit our country. The last one was the one that we had to face on February 27 of this year, which was 8.8 on the Richter Scale, probably one of the five worst in the history – in the known history of mankind.
And it had devastating effect worldwide. But in our country, this is Juan Fernandez, the island of Robinson Crusoe, before the earthquake, after the earthquake. This is a city in Chile before the earthquake, after the earthquake. This is a bridge in our main route before the earthquake and this is what happened afterwards.
And this is really something – 521 Chilean citizens lost their lives. Fifty-six are still missing. Two million people were victims. We had to suffer a generalized shortage of basic utility. When we took power, 4.2 million users were without electricity power and without a water supply.
One thousand – 1,250,000 students – one out of three, could not go back to school because their school was simply destroyed. Seventy-nine hospitals, one out of three and many, many operating rooms and beds were destroyed. Three hundred and seventy thousand homes, one out of 10, were severely damaged or simply destroyed.
Thousands of micro, small and medium business were devastated and we lost 120,000 jobs that day and 211 bridges destroyed or damaged and many, many thousands of miles of roads were cut off and dozens of ports, airports were paralyzed. This was a picture that we had to face on March 11th, when we took power and we had our first cabinet meeting which end very late at night.
This is the cost of the earthquake, $30 billion, which is roughly 17 percent of our GNP. If you were to take – make a comparison, I think that Katrina was less than one-tenth of 1 percent of U.S. GNP in order to have the proportion of what we had to face.
The reconstruction plan, in terms of public-sector investment, is worth $8.5 billion and we are funding it or financing it via fiscal austerity. We have had some donations through a law. We have been using, in a very moderate way, fiscal savings that we accumulated during the high prices of copper.
We have also used public indebtedness, sale of disposable assets and some moderate temporary and permanent tax reform, especially to large companies. And with this, we are funding our reconstruction problem on top of our government product that we have to be fulfilled, even though the earthquake was not part of our projections.
Now, this is a triple challenge because if we grow at 3 percent, which was more than the average of the last four years, it will take us until 2030 to become developed country. But if we are able to double our rate of growth, we will be able to become a developed country and achieve this $22,000 per capita income in 2018, which means it’s our task, our goal, our challenge.
And of course, we will require a lot of help and the power of unknown heroes that appear during the earthquake. And I have with me, by this way, as I show you before, which are our other heroes that are really illuminating and inspiring our country in achieving these goals. The rescue of the 33 miners, I hope that will take place early November.
At the beginning, we were thinking they would stay there until early December, but fortunately, our rescue effort are moving faster than we thought. We have called this Operation Prophet Jonas because he was eaten by a whale and he was rescued from the bowels of the whales and we are rescuing our miners from the bowels of the mountain. And that will be a very important moment for Chile because all Chileans are really participating and are committed with the rescue of the miners.
And we are being, as a government, we committed our full support in the rescue effort and we said that from the very first moment, even though many people that the possibilities or the odds were not in our favor. Fortunately, things have gone right and we know that they are alive, they are well and they will be rescued, as I told you before, by the beginning of November.
So basically, we have two big challenges, to recover the wasted time and pick up speed and to run faster and boost towards development. So we basically we would like to run like –
(Begin video segment.)
PRES. PIÑERA: Bolt. (Laughter.) I would like to jump high as Indalleva (ph).
(End video segment.)
PRES. PIÑERA: So this is our story and I’m very glad to take questions from you. (Applause.)
MS. : The president has agreed to take three questions. If you could identify yourself and Dick – and wait for a microphone. Do we have a microphone, Melissa?
Q: Thank you. Very good remarks, Mr. President. Dick Hoover. With respect to the few still major enterprises that are state-owned in Chile, where they’ll owe several others, have you considered moving it with the privatization of those to both put them back in private hands and also, obviously, to generate capital funds who contribute to the reconstruction effort?
PRES. PIÑERA: Well, it’s amazing that many times, we don’t do right what we have to do and we do, many times, in a wrong way, what we don’t have to do. So basically, that’s a yes. Part of our funding of the earthquake reconstruction plan is disposal of – is the selling of disposable assets.
Now, the case of CODELCO because it’s part of our constitution. So to move forward in that area, we need to have a very broad agreement within the Chilean society and we don’t have that yet. But there are many, many other assets that will be – will be transferred to the private sector in a very transparent way, maximizing the price in order to invest those resources in our main goals, which are basically to increase the quality of the education of our children and to increase and improve the quality of health of our families.
And I think that people will be better off and happier if the government invests those resources in the health and the education of their children than in companies that many times are not well run.
MS. : Thank you. Susan.
Q: Thank you, maybe I should – (inaudible).
MS. : Wait, wait. Yes and identify yourself.
Q: Okay, hi, I’m Susan Silverman. I’m run our Latin American business for Pfizer, so very interested in your comments on education, children and health care. And we know, this year, your government set up a health financing committee and you’re about to make your plans clear. Can you give us some anticipation of what you expect this committee to be doing and how private industry can be a part of changing health care in Chile?
PRES. PIÑERA: With Chile, we have a paradox because in terms of expectancy – life expectancy, in terms of mortality, we have very good standards, equivalent to the U.S. or any other developed country. But in terms of people’s satisfaction with the health sector, we don’t have that. And therefore, we are undertaking a very major reform in this area.
It’s not only a question of money. Of course, the Chilean population is aging and that means that the new diseases that we have to face are much more difficult and expensive to deal with and we are fully aware of that. On top of that, there are many other things, the technological revolution and the drug revolution in terms of health also implies new opportunities but at the same time, new costs.
So we need to change the way we are managing our health sector and we are, and the main aim of our reform is to improve the management of the health sector. And we’re introducing things like, for instance, we have in Chile, two kinds of diseases, those that are part of what we call AUGE, guaranteed, so the government guarantees that people will be attended in a proper way, in a fast way and without substantial economic cost.
But normally, those guarantees don’t – just live in the laws, but not in the reality. And therefore, what we are going to do is to say if the private sector is not able to honor its work, we will give each person a check so they can go wherever they want to get the health attention that they need.
So that will increase competition within the public sector and between the public and the private sector, which I think is good because at the end of the day, the important thing is not who is giving the health services, but whether the people are receiving the right in terms of quality and dignity in the health area which is so important.
Somebody said, the prime minister of China, it doesn’t matter whether the dog is – the cat is black or white. The important thing is that he’s able to cut mouses (ph) or mices (ph) – how do you say it?
MR. : Mice.
PRES. PIÑERA: And the same thing, I think, should be applied to our health sector. I don’t care who is providing the service. My only concern is that people, especially poor people, receive the right kind of services.
MS. : Can I ask you a favor? Can you take a couple of extra questions?
PRES. PIÑERA: Yes.
MS. : That’s great. Okay, so we have one here. We have one there and then we have Luis.
Q: President, I’m Richard Adkerson from Freeport. Thank you for your remarks. Your country is the world’s largest copper producer and China is the world’s largest copper consumer. Can you comment on the relationships between Chile and China?
PRES. PIÑERA: What China has become our major trading partner. It represent like 25 percent of our exports and a similar percentage of our imports. That means that the – the economic integration is moving fast. It’s true. We are the – probably the biggest copper producer in the world and we want to keep it that way. That’s why we are trying to invest around $50 billion within the next 15 years in the mining and copper industry.
And we are moving in that direction and China is, of course, importing not only copper, many, many other things. I think that Chinese now have, really, discover our Chilean wines and they will, probably, they will become very soon – (laughter) – and we hope that each of one of them can eat – can drink one glass of wine a year. That’s enough for us. (Laughter.)
And they are also – they are also – they are also becoming a very important trading partner for many other Latin American countries. Actually, they will become, very soon, the first investor – foreign investor in Latin America. So they are emerging as a superpower and we are part of APEC, so we have a free trade agreement with China, as we have it with the U.S., with Europe, with Japan, with Korea, with 58 countries.
So Chile has decided, a long time ago, that we want to become part of the world, open up our economy and rely on a free, open and competitive economy. And China is one of our most important trading partners and it’s become, also, an important investment partner. And I think that that’s all right and I hope the U.S. will pick up and recover its time.
I would like the U.S. to move faster in terms of free trade agreement with countries like Colombia and Panama, which have been waiting too long because at the end of the day, remember that. If the U.S. doesn’t take those opportunities, somebody else will do it and China is doing it.
MS. : Thank you. Right over here. Please identify yourself.
Q: José Antonio Buenaño, Royal Bank of Scotland. Mr. President, as a Chilean, I witnessed with pride how many international investors and U.S. real money account for buying the Chilean CLP and U.S. bond issues as an alternative to – (inaudible) – the U.S. Treasury. So I would like to know, sir, from your standpoint, what do you think should be Chile’s role in the emerging financial market in the next five years? Thank you.
PRES. PIÑERA: Well, actually, people normally tend to think of Chile and other countries as debtors. The net debt of Chile is negative. That means that we’re not debtors, but creditors of the world. And we decided to issue this bond because want to have a price attached to the Chilean government because that would be a guide to all the private sector that want to go to the open market to raise funds.
I don’t expect that Chile will be borrowing too much money, first of all, because we have our own savings. And secondly, because we are very much committed with fiscal equilibrium. We, normally, we had a goal of having 1 percent – a surplus of 1 percent of GNP, which was lowered to 0 percent.
Due to the earthquake, we have allow for a small structural fiscal deficit, but we will come back to equilibrium before the end of our government. And in order to fulfill that fiscal rule, we will have to live not beyond our means. So we will not be a very active borrower in the international market.
But it doesn’t mean that we won’t – we will not be a very active player in the capital markets because there are many other service that we will have to be using like forwards and options and then many things in order to stabilize our economy. Particularly, we are so dependent on price of raw materials and we want also to change that story.
So one of the goals the government is doing, add value to our raw materials. So to add – Chilean label, Chilean intelligence, Chilean technology to our raw materials and be able to export product with more value added. I think that’s a great way to strengthen our development process.
MS. : Last question, Luis Gomez.
Q: Mr. President, thanks so much for your remarks, Luis Gomez from J.P. Morgan. As someone who comes from the private sector, you know very well the challenges imposed on manufacturers from currency appreciation.
Chile, right now, has not been the exception to a trend in Latin American of strengthening of local currencies and probably something that’s going to continue next year to the extent that the Fed isn’t going to be hiking rates and interest rate differentials are going to be growing. What do you think the government and/or the central bank should be doing at this stage in order to either continue appreciation or at least allow the private sector to live with a stronger currency? Thank you.
PRES. PIÑERA: Well, at the end of the day, if you grow faster than the rest of the world, your currency has to appreciate itself. That’s the way that the new wealth expresses itself and that is what is happening in Chile. Because we are, of course, our currency have been appreciated, but at the same time, we are still running a very huge commercial service.
And therefore, I think that the exchange rate, it’s in its normal and equilibrium range. So I don’t think that there will be major changes in the near future in our exchange rate. Now, of course, that we have to be very careful because we don’t want to jeopardize our export effort. And therefore, we are continuing to have a strong exchange rate, basically, by running a very, very serious and responsible fiscal policy. That’s our main contribution.
But with the price of copper beyond $3 per ounce, which I think will continue for a long period of time, I don’t think that our currency – our exchange rate is beyond the level of equilibrium. So we will continue to a strong exchange rate via a very responsible fiscal policy. But the central bank has some – also some tools to intervene. They have not been using them because share our view that the exchange rate is in a normal path.
And we are very careful with interest rate, of course, because our interest rates are still very low and I hope – I think that the interest rate in our country will start growing slowly, but steadily and probably we will achieve interest rates similar to what you are having in the U.S.
And another thing is that of course, because we compare exchange rate with the U.S. dollar, basically, and the difference that Chile is growing faster than the U.S. and we are running – we are think we are running a fiscal equilibrium while the U.S. is running a huge fiscal deficit. Those are the main two reasons why I think that Chile peso has been appreciated vis-à-vis the dollar.
MS. : Thank you, Mr. President.
PRES. PIÑERA: Thank you very much.
MS. : Thank you. (Applause.) With that, I want to thank President Piñera for his outstanding presentation and with him well. Six percent growth, net creditor, arriving at a developed status, almost doubling the GDP per capita, improving health care, education, these are all the critical issues. We wish you well and we hope to be able to be as supportive as we possibly can throughout your administration and always of Chile. Thank you again, Mr. President. (Applause.)