It's the Economy, Stupid.

Chile's two leading presidential candidates aim for the center by talking up job creation and health care.

MASS FIRINGS AT STATE ENERGY firms controlled by high-flying foreigners. Ten months of steady deflation. Port workers on strike.

Chile's presidential campaign should be fertile ground for shrill sloganeering. Don't bet on it. As the December 12 vote looms, the two leading candidates sound more like boring small-town mayors, gobbling down empanadas and chatting about job creation and health care.

Front-runner Ricardo Lagos, 61-year-old socialist and economist who, as a young lawyer, wrote that the state should forcibly take over private industry, has jetted to Wall Street to court analysts. His only serious rival, conservative economist Joaquin Lavin, who is mayor of Las Condes, an affluent suburb of Santiago, has cautiously shed his hard-line backing of former dictator General Augusto Pinochet. He now talks of municipal make-work programs to alleviate Chile's spiking unemployment rate. One wonders if they'll bump heads in the mad rush to the middle ground.

Call it "ain't-broke-don't-fix-it politics." A decade after voters sacked Pinochet in favor of democratically elected government, those who would criticize the bulk of the general's economic reforms have been relegated to academic backwaters. Average annual growth of nearly 7% has keep its pace from 1985 until slumping this year. Analysts say Chile will rack up zero growth or lose ground slightly in 1999 as Chilean shoppers stay on the sidelines and global commodity prices continue to limp (copper alone still provides 40 cents of Chile's export dollar).

Unemployment, level at just over 6% for the decade, has leapt to one in 10 workers as the Asian recovery sputters. Experts see growth rebounding sharply just around the millennial corner, partly on Chile's rock-solid banking system and a 22% national savings rate. Gross domestic product is forecast to expand anywhere from 4.5% to as high as 6% in 2000.

The bold predictions of boom times notwithstanding, divisions still run deep in Chilean society. The myth of national healing after the bitter Pinochet years (1973-90) evaporated quickly following the general's October 16 arrest in London on charges of torture and genocide. As Spanish magistrate Baltasar Garzon maneuvered to corner the ailing 83-year-old Pinochet, protesters threw eggs at the Spanish Embassy in Santiago. Across town, the families of Chile's thousands of missing and tortured popped open bubbly.

More campaign than conviction. Guilty or not, slightly more than half of Chileans polled in July believe Pinochet should not be held accountable on foreign soil. Meanwhile, an amnesty law protecting retired officers still in the country threatens to unravel. Desperate to get the issue behind them, military, church and civic leaders in Chile are in balks designed to finally resolve the location of missing leftists killed after the 1973 coup.

"The struggle for the center is something we have seen all over Latin America," says Enrique Correa, a politica1 consultant and political columnist in Santiago. "It's going to be a campaign with little of the old convictions. Lavin will continue to distance himself from Pinochet and Lagos from Allende. So the real test will be the economy."

Chile's economy, however, can be a mixed bag. Public spending boomed over the 1990s, fueled by taxes on strong economic growth. Health budgets nearly doubled between 1990 and 1998, while school hours are steadily extending to a full business day.

Nevertheless, the informal economy remains huge: Some 40% of workers live day to day on barely productive jobs that nevertheless require 50 hours per week or more to make ends meet. This is happening while companies scrape to fill technical and management jobs that require specialized training. Getting people, especially young people, integrated into a growing economy will likely be the single most important issue, historical and political divisions aside.

It's telling that both leading candidates have advanced degrees in economics--Lavin has a master's degree from the University of Chicago, the birthplace of Chile's ironclad free-market system, while Lagos has a doctorate from North Carolina's Duke University, which he earned in the early 1960s.

Despite the spending spree, the post-dictatorship coalition managed until this year to keep public spending well in the black. Economists predict a 1% deficit in 1999, a trend that will be difficult to tame until exports recover and the government manages to recoup at least part of an estimated US$4 billion annually in evaded taxes.

Lagos has steadily led the polls, but his message to voters has nonetheless been carefully crafted: progress and justice, but no big change. He would like to undo the 1980 Pinochet constitution, which doled out lifetime seats to the general's staunchest supporters as the dictatorship shut down.

Divvying up gains more equitably--the upper 10th earn 41.3% of national income and the bottom 10th earn 1.5%--is also a major goal. But getting there will be done the same way it has been done in Chile since the mid-1980s: privatization, monetarism and export growth.

Lavin is mostly an echo of these sentiments, although he trades on his Chicago background and is just fine with the Pinochet constitution. Most observers and the polls don't give him much of a chance at victory, and that's okay. "Lavin is thinking ahead," notes pollster Carlos Huneeus, executive director of the Center for the Study of Contemporary Reality "He's planning for the next elections."

Indeed, by 2006, Lavin will no longer be a small-town mayor who once ran for president, but a seasoned politician who gave the better-known Lagos a solid run for his money.

In the meantime, there are municipal elections in 2000--with the mayoralty of the city of Santiago, a major stepping stone for the presidency, in the offing--plus congressional seats opening in 2001, Huneeus says.

But bigger problems may be brewing for both left and right. Thousands of eligible young voters have shunned registration, and nearly a fifth of the votes in the last congressional elections were cast blank or crossed out. Part of the problem, pundits say, is an overwhelming exhaustion Chileans feel toward confrontational politics.

This time around, the campaigners seem to have gotten the message. Turning the middle into a mandate, however, means curing social ills while keeping the economy sound. That's no cakewalk.