Chile's Bachelet names new cabinet amid scandal

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Santiago (AFP) - Chilean President Michelle Bachelet named a new cabinet Monday, seeking to turn the page on a corruption scandal involving her son that risks derailing her ambitious reform agenda.

Five days after making a surprise announcement that she had asked her entire cabinet to resign, Bachelet unveiled her new line-up of ministers, sacking five, including finance minister Alberto Arenas and interior minister Rodrigo Peñailillo, a close ally who was also her chief of staff.

"Today, it's time to give new impetus to the quality of our government," said Bachelet, Chile's first woman president.

Bachelet, 63, replaced Arenas with the head of the national bank, Rodrigo Valdes -- the first time a Chilean leader has sacked a finance minister since the end of the Augusto Pinochet dictatorship in 1990.

Peñailillo was replaced by Jorge Burgos, who was previously defense minister.

Four of her 23 ministers were also reassigned to different portfolios.

Bachelet had previously announced that Foreign Minister Heraldo Muñoz would keep his post -- a key job with Chile in the midst of a border dispute with Bolivia at the International Court of Justice.

The shake-up in Latin America's most prosperous nation comes as the Socialist leader's popularity has plunged to 29 percent, the lowest level of her two presidential terms.

Bachelet's efforts to overhaul the education system, pass new labor and tax laws, and change the constitution inherited from Pinochet have all but ground to a halt since accusations emerged that her son and his wife used political influence and inside information to make $5 million on a shady real estate deal.

She denies any knowledge of the deal, and has not been implicated in the case. But the scandal has been damaging for a politician who has roundly condemned inequality and the privileges enjoyed by the Chilean elite.

Another scandal has also emerged involving tax fraud and illegal campaign contributions by some of Chile's largest companies, shaking the confidence of a country that prides itself on stability and transparency.

That scandal has tainted the opposition as well as the government.

But Peñailillo, who was close to Bachelet and had been dubbed her "political son," recently admitted accepting payments as a consultant for one of the companies involved, spreading the stain to the heart of the president's cabinet.

He also came under fire for his handling of the scandal involving Bachelet's son Sebastian Davalos, which he failed to contain when it exploded while the president was on vacation.

- More moderate agenda? -

Political analysts said the changes at the top would likely put a moderate lid on Bachelet's proposed reforms.

"This is not a cosmetic change," said political scientist Mauricio Morales of Diego Portales University.

"This changes the road-map," he told AFP.

"It's a blow to the chin for the more recalcitrant left, the radical reformers who wanted to change everything."

Fellow analyst Patricio Navia said the president had sent a signal of "moderation" while "keeping a loyal team in place."

The naming of Valdes as finance minister appeared aimed at boosting market confidence in a country that registered its lowest growth in five years in 2014, 1.9 percent.

Valdes, 58, is a business engineer who previously worked at the International Monetary Fund from 2009 to 2012.

Bachelet, who first served as president from 2006 to 2010, started her second term in March 2014.

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