The Good Fortune of Michelle Bachelet

By late 2008, as the rest of the world was falling into one of the worst recessions in decades, the Chilean government had amassed $42 billion in savings -- the result of fiscal discipline and a 60 percent increase in exports since 2005. Now Chile is a creditor nation and the only country to have its credit rating upgraded by Moody's Investor Services during the global recession. On June 23, President Obama called Chilean President Michelle Bachelet one of the "most compelling leaders that we have, not just in the hemisphere but around the world."

But she hasn't always received such praise. Just a year ago, Bachelet's approval rating was only 44 percent; in 2007 it fell as low as 35 percent. Since she took office in March 2006, Bachelet has repeatedly bucked her own party, saving when others wanted to spend and thinking long-term when others sought immediate gains.

As she asked an audience at the Brookings Institution during her recent visit to Washington, "Can you imagine how much more popular I would be if I were a populist?" Fortunately for Chile, Bachelet is not.

Bachelet's savings plan allowed Chile to draft the fifth-largest stimulus package in the world, as measured by share of national income. The undertaking still requires deficit spending, but according to Chilean Finance Minister Andres Velasco, the deficit will only total 4 percent of the country's gross domestic product, much less than the 14 percent of GDP required by the United States.

Hours before meeting Bachelet in the Oval Office last week, Obama expressed admiration for Chile's setting aside its surpluses. "They had the resources to deal with the downturn," he said. "It's a good lesson for the United States. When we had surpluses, they got dissipated."

But the good lesson doesn't end with savings. Bachelet is also spending wisely. She has addressed the nation's economic vulnerabilities and reduced Chile's dependence on unstable commodity markets. Her solution is simple: Diversify by increasing human know-how and evolve toward a knowledge-based economy.

Those goals are at the center of Bachelet's $6 billion investment in higher education, launched more than a year ago when the thought of a commodity bust was remote. Thanks to the fund, the number of Chilean students going abroad to further their educations, particularly at universities in California, will increase four-fold this year. "That will help us to improve the capacity of our human capital, the capacities of our universities," Bachelet said in her speech at Brookings. "And then we really could meet the goal of being a developed country in the future."

To further that goal and to respond directly to the global economic crisis, Bachelet's government developed an innovative mechanism to combat unemployment without increasing the number of government employees. Through what Bachelet calls a "historic agreement" reached last month and quickly approved by the Chilean Congress, the government and private enterprise will together blunt the recession's effects on workers while improving their productivity. Known as the National Accord on Employment, Training and Labor Protection, the agreement offers employers tax incentives to train workers instead of laying them off. As long as companies employ the same number of workers they did in April, they can deduct up to two and a half times the training costs.

Other provisions allow workers who want training to leave work for five months while receiving half their pay, and to keep their jobs when they return. The government will also double resources to assist female heads of household so that they can obtain quality training and join the labor force. According to government projections, the plan will help approximately 125,000 workers, the equivalent of reducing Chile's unemployment rate by 1.5 percent.

According to Rafael Guilisasti, the president of the pro-business Confederation for Production and Trade, this agreement constitutes "the first instrument with sufficient modern elements of labor adaptability to crisis situations." Clearly owners favor more flexible labor markets with less regulation. But Guilisasti says Chilean business leaders appreciate the discussions they've had with government authorities to find ways to reduce the effects of the crisis on employment.

The agreement is a testament to Bachelet's leadership skills and ability to adapt. Maria de los Angeles Fernandez-Ramil, the executive director of the left-leaning think tank Fundacion Chile 21 and the author of a study on Bachelet's leadership, characterizes the president's relationship with the private sector as "complex" at best during her first two years in office. One of the benefits of the accord, Fernandez-Ramil says, is that it "eased the relationship between government and business."

The economic crisis has taught the world that, in the long run, responsibility is better than populism. Yet those who are responsible frequently don't get to see the benefits of their decisions. Because she happened to govern when the economic crisis struck, Bachelet did: This month, her approval rating jumped to 67 percent.