Bachelet reforms hinge on deft handling of Chile's tricky Congress

By Alexandra Ulmer SANTIAGO (Reuters) - Presidential favorite Michelle Bachelet fell just short of a decisive first-round victory and her center-left bloc failed to gain major ground in Congress on Sunday, possibly snarling her ambitious plans to curb Chile's steep income inequality. To be sure, Bachelet triumphed against eight other candidates and is expected to handily beat the wounded right-wing's presidential candidate, Evelyn Matthei, in next month's runoff vote. 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. Still, the former president was hoping to make more of a splash. Bachelet, who was Chile's first female president from 2006 to 2010, will need to woo independents to block the right's veto power, broker power with the bruised right, and hope social movements pile pressure on Congress to approve her flagship reforms. Bachelet's bloc only clinched the simple majority necessary to usher through a tax increase destined to fund an education overhaul. According to projections, the bloc will hold 67 of the 120 seats in the Lower House, and 21 of the 38 Senate seats, up from roughly 57 and 20 respectively. Her coalition failed to secure the four-sevenths majority required for education reform, a hot-button issue which has triggered massive protests. It also fell short of the three-fifths necessary for electoral reform and the two-thirds needed to strike down the constitution which dates from Augusto Pinochet's military rule. These high majorities are nearly impossible to reach due to the electoral system, created at the end of the Pinochet dictatorship essentially to ensure the right would continue to wield significant power in Congress. "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. Even though Bachelet may be the winner tonight she is not in an enviable position." 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 and closing tax loopholes. To be sure, congressional inroads by independents, including some emblematic former student leaders, could help tilt the balance in Bachelet's favor. "She's going to have to opt for a more cross-section cabinet, a more centrist cabinet," said political analyst Guillermo Holzmann. "If she goes too far to the left, there will be polarization. If there's polarization, then negotiations in Congress will be trickier." "I think her reforms are still viable, but at a different rhythm. It could be slower," added Holzmann. A CHANGED CHILE Since the end of the dictatorship in 1990, Chile has experienced stability and steady economic growth, in stark contrast to some of its more politically tumultuous neighbors. The massive student protests of 2011 clamoring for free and improved education shook Chile's reputation as the 'miracle child' in Latin America and highlighted a strong distrust of the political elite and frustration with the concentration of wealth in the world's No. 1 copper producer. The country Bachelet is poised to govern once again is very different to the one she left for New York to head U.N. Women. In a sign of what awaits Bachelet, a small group of high school students briefly tried to "take over" her campaign headquarters on Sunday afternoon. "We understand that no government, regardless of its willpower, will generate change from within institutionality, because it's designed to avoid change," one student leader told local radio Cooperativa. Chileans are broadly behind Bachelet's plans: around 74 percent are in favor of making free higher education a priority and 51 percent want the binominal electoral system to be reformed, a CEP poll showed last month. But the trick will be ensuring social movements keep pressuring Congress - and do not turn against her. 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 of slowing economic growth in Chile. Still, the ruling right-wing Alianza coalition lost ground in Congress and is facing a heavy defeat in the second round of the presidential vote. That boosts Bachelet's bargaining power. The bloc held its 16 seats in the Senate and has 49 seats in the Lower House, down from 55 currently, projections showed. "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. Chile's electoral system has fueled frustration among many people who feel their demands cannot be met by a Congress that does not reflect their views. Divorce was only legalized in 2004, for instance. Some Chileans cast their vote in favor of Bachelet precisely because they think she represents the best chance for change. "I would like deeper changes (than what Bachelet promises) but ... I voted for what is possible," said Juan Carlos Aedo, a 56-year-old social worker who said he was imprisoned and tortured under the Pinochet dictatorship. "If the right doesn't let us push through change the only way forward will be outside the institutional framework, and as the left we know the cost that has," added Aedo, who said he had written 'AC,' or 'Constitutional Assembly' on his ballot. Organizers of the 'AC' campaign said around 8 percent of ballots asked for a constitutional assembly to draft a new constitution to replace the current one they consider illegitimate. (Reporting and writing by Alexandra Ulmer; Additional reporting by Rosalba O'Brien; Editing by Jackie Frank)