After popular unrest rocked the nation at the end of 2019, we remained concerned about the prospect of further tumult in April, at a time when Chileans would vote on a new constitution. Protesters showed up in the central square recently, but passing motorists have shouted at them to self-quarantine.
The plebiscite (or referendum) for a proposed change in the Chilean constitution originally planned for April has been postponed until October, and the President has declared a ‘state of catastrophe’ in order to respond to the virus.
International investors have expressed concern about the plebiscite in case it leads to legislation that might threaten property rights. However, the likes of Scotiabank remained bullish, pointing to a rebound in export and power generation activity in January. They argue that some projects have progressed too far for investors to withdraw their support.
However, the Coronavirus has strained the country’s economic situation, with a 16.5% slide in the value of the Chilean peso against the dollar and a 23% decline in the price of copper.
In response to the COVID-19, the Chilean government has announced a $12 billion dollar stimulus, including a $2 billion fund to support informal workers. The stimulus is equal to 5% of GDP and has put the country’s fiscal deficit at 8% of GDP, but in view of the pandemic, many governments have likewise promised to mount unprecedented stimulus packages.
Mark Cutifani, executive director of Anglo American, is cautious but optimistic, expressing the hope that the ‘new Magna Carta’ of the country would not impact the mining industry, which continues to be integral to the country’s growth.
Cutifani recently said, “One thing we know for certain is that Chile knows how important mining is for this country and I would be greatly surprised if they did something that would impact foreign investment.”
In addition, with the price of copper sliding, the country will face increased pressure not to reform property rights.
Chile has been the Latin American country with the best risk rating for decades and is the only South American nation admitted to the OECD. Moody’s maintained a stable outlook for Chile in December, but in early February, the Economist Intelligence Unit cited ‘policy uncertainty’ due to the potential constitutional reform.
Oxford Economics predicted a downgrade for Chile in 2020 due to uncertainty. This prediction was based on the fiscal effort and public expenditure that will be required for the reconstruction following the October uprising, together with reforms to the country’s pension system.
There have, however, been some notable examples of bullish behaviour, from also Santander Bank and Icelandic investor Björgólfur Thor Björgólfsson’s recent USD 1 billion plus deals for WOM telecom.
I anticipate a ‘No Change’ win in October, as people realise that the importance of foreign investment in Chile’s progress. But as recent votes and referendums in other parts of the world have taught us, it pays to prepare for the unexpected. Fear of the Coronavirus has succeeded in keeping people off the streets, where the authorities have notably failed.
Fernando Rodriguez is Swann’s General Manager in South America.
He is based in our Santiago office.
Image (c) Shutterstock / Roberto Baeza