UPDATE 1-Bachelet Wins Chile Presidential Election but Faces Runoff

Monday, 18 November 2013 09:06 AM

* Bachelet took lead presidential vote but will go to second round * Will need to bargain with right, independents in Congress * Q3 GDP grew 4.7 pct vs year earlier, mild pickup from Q2 rate (Writes through, adds details on economy, Q3 data, peso) By Alexandra Ulmer SANTIAGO, Nov 18 (Reuters) - Chile presidential favorite Michelle Bachelet fell short of a decisive victory in Sunday's elections and while she is favored to win next month's run-off vote, she faces an uphill battle to push through an ambitious reform program. Bachelet, who was Chile's first female president from 2006 to 2010, is expected to beat the governing right-wing's presidential candidate, Evelyn Matthei, in next month's runoff vote. But the center-left politician failed to gain the momentum she wanted to earn from an outright victory without the need for a second round, or gain the significant majorities she sought in Congress. Now she will need to woo independents to block the right's veto power and hope social movements pile pressure on reluctant politicians to approve her flagship reforms to tax and education. Bachelet's diverse coalition, which ranges from the Communist Party to the moderate Christian Democrats, will also need to be kept in check. And she will have to navigate all these tensions at a time when Chile's economy is cooling. The central bank has forecast growth in Chile of between 4.0 and 4.5 percent in 2013, down from 5.6 percent in 2012. The export-led economy grew 4.7 percent in the third quarter and domestic demand, which has helped fuel growth in recent years, expanded a meager 1.3 percent, data showed on Monday. "Behind the strong growth numbers of recent years, the reality is that Ms. Bachelet is about to take the helm of an economy that is in worse shape than the one she inherited in 2006," said Michael Henderson, emerging markets economist at Capital Economics. CONGRESS CHALLENGE Under Chile's unusual electoral system, a dictatorship-era creation which gives the second-place party a bloated presence in Congress, Bachelet's Nueva Mayoria coalition never nurtured much hopes of sweeping the legislative body. The final count has yet to be confirmed, but by Monday morning it seemed Bachelet's bloc had only definitely clinched the simple majority it needs to pass certain planned reforms, including a hike in corporate taxes, the closing of a business tax loophole and the creation of a state-run pension fund. The bloc was on the cusp of securing the four-sevenths majority required for education reform, a hot-button issue which has triggered massive protests. However, it had fallen short of the three-fifths necessary to change the electoral system and the two-thirds needed to strike down the constitution which dates from Augusto Pinochet's military rule. "This result will surely be disappointing for Bachelet," said Peter Siavelis, political science professor at Wake Forest University and the author of a book on Chilean politics. "Social movements that have spilled onto the streets are demanding reform, yet the limits of the institutional structure of Chile are going to limit her capacity to engage in reform." On the economic front, Chile's current account deficit reached $3.44 billion in the three-month period ending in September, equivalent to 5.1 percent of gross domestic product, bank data released on Monday also showed. The current account is a broad measure of a country's international transactions, including foreign trade, interest payments, tourism and profit remittances among other items. "Since 2006, Chile's structural budget surplus has turned into a deficit. Meanwhile, on the back of a private sector consumption boom, the current account balance has shifted from a hefty surplus into a sizeable deficit," Henderson added. The slowing economy and mixed global picture spurred the bank to cut interest rates from 5.0 percent to 4.75 percent last month, the first time the rate had moved since January 2012. November's central bank interest rate decision is due on Tuesday and many in the market are betting on another cut. The peso rose lightly against the dollar on Monday morning, up 0.23 percent at 08.30 local time (1130 GMT), largely unaffected by the political scenario. "The result of the elections was already priced in," said a trader. BACHELET'S FIRST TERM Many of the pediatrician-turned-politician's plans in her first term as president were stunted by deadlock in Congress. Experts and allies say Bachelet has since become a tougher negotiator, but she will need every ounce of political dexterity to build support for her plans, which also include legalizing abortion in certain circumstances. Congressional inroads by independents, including some emblematic former student leaders, could help tilt the balance in Bachelet's favor. Her bargaining power is also boosted by a poor showing from the right. The ruling right-wing Alianza coalition lost ground in Congress and is facing a heavy defeat in the second round of the presidential vote. "The right lost substantially so they're going to be very open to reforming (the electoral system)," said Marta Lagos, the head of pollster MORI. (Writing by Alexandra Ulmer and Rosalba O'Brien, Additional reporting by Froilan Romero and Anthony Esposito; Editing by Jackie Frank)

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Monday, 18 November 2013 09:06 AM
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