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Fitch: Continued Uncertainty in Chile
Chile overwhelmingly votes down proposed constitution.
BY LATINVEX STAFF
The rejection of Chile's proposed new constitution prolongs rather than resolves uncertainties stemming from constitutional reform, although it may ease concerns among Chilean corporates around potential future proposals, Fitch Ratings says.
“Nevertheless, uncertainty will continue to weigh on investment in key sectors and hence on economic growth, while social spending is likely to rise irrespective of the referendum outcome,” the ratings agency warns.
In Sunday's referendum, the 'Reject' side received 62% support to 38% - a much wider margin than opinion polls suggested. The proposal was developed by a Constituent Assembly elected in May 2021, following widespread protests in late-2019 against inequality, the pension system, and perceived underfunding of public services.
Chile’s stocks jumped as much as 5% to an all-time-high, before paring some losses,
The unexpected landslide defeat was seen as a stinging defeat to the presidency of Gabriel Boric, Bloomberg reports.
"Voters’ overwhelming rejection of the proposed constitution should be interpreted as a rejection of extremism in Chile,” Patricio Navia, clinical professor of liberal studies at New York University and professor of political science at Universidad Diego Portales in Chile told the Inter-American Dialogue’s daily Latin America Advisor. “The Boric administration will have to swallow its pride and abandon the claim that Chile needs to change course and adopt a more state-centered economic model.”
In addition to stocks strengthening the coming weeks, the copper and lithium industries will also garner some relief given the proposed charter signaled tougher environmental and community rules, Bloomberg reports.
“The referendum result does not end the process of constitutional reform,” Fitch points out. “Support for a new constitution was strong in the 2020 plebiscite that led to the setting up of the Constituent Assembly, and recent polling indicates little popular appetite to revert to the existing constitution, dating from 1980. President Gabriel Boric said on Sunday that he was still committed to "building a new constitutional itinerary."
The rejected proposal had raised significant questions over the role of indigenous peoples in approving major projects in sectors such as mining, electricity and forestry; water rights under a new system of temporary and revocable permits; compensation for owners of expropriated assets; the role of the private sector in providing health insurance and pensions; and the composition and powers of the upper house of Congress.
“The fact that it will not be implemented could boost market sentiment and removes the most immediate issue that has affected corporate investment,” Fitch says.
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