Uncertain outlook for Chile with political change underway
Chile, Latin America’s richest but deeply inegalitarian country, faces an uncertain economic future after mostly left-wing independents sweep the elections to dominate a body that will rewrite the country’s free-market constitution.
Over the nine months, the 155-member editorial body will need to balance a popular clamor for deep social change with the need to maintain a robust economy that many attribute to Chile’s conservative dictatorship-era constitution.
Much to the surprise of experts, voters in the weekend’s elections flocked to independent candidates with no party affiliation but predominantly leftist or socialist ideas for the new constitution-drafting “convention”.
The right-wing parties, in power in Chile and supported by the business world, ended up with less than a quarter of the seats.
This means that the law will not have a veto over the body which needs a two-thirds majority to approve the draft constitution that it will submit to a national referendum next year, in which the vote will be obligatory.
The Santiago stock exchange did not appreciate the election result, opening nearly 10% lower on Monday as the peso fell 2.0% against the US dollar.
“The strong presence of independent candidates (…) implies the possibility of a significant change in the framework of the macroeconomic policy of Chile,” said an analysis by the Institute of International Finance (IIF), an association of the ‘industry.
– A reproach –
Claiming 48 seats on the new “constitutional convention,” most independents campaigned on leftist pledges such as cutting water supplies and pension funds out of private hands.
Chile is the richest country in Latin America, but its working class is heavily in debt due to its reliance on private health care, pensions and education – the quality of which depends on what you spend.
Deep societal inequalities and demands for a broader social safety net sparked widespread protests that erupted in October 2019, costing dozens of lives and forcing the current rewrite of Chile’s founding law.
Activists say the constitution, which dates from the reign of military dictator Augusto Pinochet, only deals with the elite.
Turnout in the vote last Saturday and Sunday was low, at less than 50 percent, but the result was a clear rebuke to mainstream political parties and the right in particular.
Independent candidates form the largest bloc on the new convention, with left-wing opposition parties making up most of the rest.
Seventeen seats were reserved for representatives of the indigenous peoples of Chile.
“Several things will change, without a doubt, because of the composition (of the convention) and the lack of a right-wing veto,” Gonzalo Martner, an economist at the University of Santiago, told AFP.
The IIR agreed that change was inevitable, “given the depth of popular antipathy and the legacy of deep income inequality.”
This will include, he said, “a more explicit and expanded role for historically underserved groups, which will likely increase spending needs.”
– Not monolithic –
Given the unusual and unexpected composition of the editorial staff, observers expect a lot of haggling and wrangling over the coming months.
“It is not a monolithic bloc,” economist Valentin Carril said of independent candidates, and predicted “difficulties” in finding consensus.
“It means a lot of uncertainty,” he told Diario Financiero newspaper.
“My basic scenario is that there will be uncertainty until the end of the constitutional convention.”
It comes as there is already nervousness after Chile’s lower house of parliament this month approved a bill to impose an additional tax on copper and lithium sales.
Opposed by the industry and the president of the world’s largest copper producer, the bill now passes through the Senate.
The government has also recently come under pressure to allow people to take early retirement withdrawals as a buffer against the fallout from the pandemic – easing short-term pain but possibly threatening longer-term financial stability.
In the coming months, investors will be on the lookout for signs of increased public spending, nationalization of natural resources and threats to macroeconomic stability.
But the results of last weekend’s elections – also for local councilors, mayors and governors – made it clear that the ruling right is in a precarious position ahead of the general election in November.
Among other major changes, Santiago got its very first Communist Party mayor in Iraci Hassler, who defeated Felipe Alessandri of President Sebastian Pinera’s National Renewal Party.
“The ongoing political events are expected to dramatically increase the perception of country risk,” said the IIR analysis.
“Political fragmentation and eroded faith in traditional political parties add significant uncertainty.”
© 2021 AFP