Innovative Leader of the Year: Andrés Velasco – Steward of Chile’s Wealth

SANTIAGO, Chile — Political exile, classical economics training and a stint as a trade negotiator helped shape Andrés Velasco’s view of the world. When it comes to managing Chile’s finances, the finance minister is unapologetically pragmatic.

“Governments ought to behave like sensible families,” insisted the 48-year-old economist. “When you have extraordinary income, you should save a good chunk of it and use it in lean times.”

It is this conviction – almost unprecedented in Latin America – that has positioned Chile so well to withstand the current economic downturn.

When Velasco left his post as a Harvard economics professor to join President Michelle Bachelet’s Cabinet as finance minister in 2006, Chile was in the midst of a copper boom that was generating billions of dollars in windfall revenue for the national coffers. Students, workers and politicians urged Velasco to spend that money, but the minister, a student of Latin American economic history, resisted their calls.

“This is the region of mismanaged booms and busts,” Velasco explained.

“Countless episodes of high copper prices, high tin prices, high oil prices, have fueled unsustainable booms,” he said. “When we came into office, we were clear we were going to break with that history and show you can manage a commodity boom in Latin America. There is almost no precedent of that in our history.”

Rather than spending, the government saved. Between 2005 and 2008, Chile racked up combined fiscal surpluses of $42 billion – equivalent to 26 percent of the gross domestic product. Such fiscal prudence was highly unpopular, and both Bachelet and Velasco were criticized as tight-fisted. But now, the government has been drawing on those funds to cushion the impact of the global economic slowdown, and the average Chilean views Velasco and Bachelet in a different light. Velasco is widely cited as the most popular minister in government while Bachelet’s approval ratings top 70 percent, even higher than when she took office in March 2006.

Much of what Velasco knows about economics he learned in the United States. In 1977, when Velasco was 16, his family was forced into exile by the Pinochet dictatorship after his father, a distinguished law professor, voiced his disapproval of the regime’s human rights record. Velasco finished high school in Massachusetts at Groton, one of the most prestigious prep schools in the United States. The school taught him to write concisely and to speak eloquently.

Velasco attended Yale University, where he earned a bachelor’s in economics and philosophy and a master’s degree in international relations. In 1982, he returned to Chile for the first time, for a short trip made “against my parents’ wishes.”
It was a desperate time for Chile. The peso had been devalued, the banking system was collapsing and opposition to the military was growing. “It was probably not that prudent for me to be walking around the streets of Santiago when my father was an exile and a fairly prominent member of the opposition,” Velasco conceded.

Back in the United States, Velasco completed his Ph.D. in economics at Columbia. Following the restoration of democracy in 1990, he returned to an altogether happier Chile to work in the finance ministry where he handled international finance and negotiated a trade treaty with the United States. He left government for academia, joining the faculty of Harvard as a professor of international finance and development until Bachelet tapped him for her Cabinet.

Earlier this year, when his 2-year-old daughter Ema almost drowned in a swimming pool accident, Velasco’s hospital bedside vigil won over many Chileans who admired his dignified handling of the situation. The photogenic Velasco is married to Consuelo Saavedra, a well-known anchor of Chilean television. They have another daughter, Rosa.
When he’s not running the economy, Velasco is often running the sidewalks and parks of Santiago. A self-described “running addict,” Velasco also admits to being a voracious reader “of pretty much anything you put before me, from dense papers on economic theory to most kinds of fiction.”

He has even written a couple of novels himself and says he’d like to write more. He always carries a moleskin notebook in which he jots down ideas for future projects.

Velasco overlooks the presidential palace from his wood-panelled office on an upper floor of the Finance Ministry in central Santiago. Given that his own popularity is at an all-time high, many have suggested that he should set his sights on the top job.

He remains tight-lipped on the subject and claims he has no plans for when Bachelet’s term in office ends in March 2010.
“I spent five years as a professor at Harvard and now four years as a minister,” he says. “Once I’m done, I will sit down with my wife and we’ll plan what will happen next. For now, I really don’t know.”