Elections put Chile’s economy at the mercy of angry voters

Politically polarized Chile will hold presidential elections on Sunday, with voters willing to overthrow an economic model installed during the Augusto Pinochet dictatorship, or determined to redouble its free-market spirit.

So far, the vote is shaping up to be a battle between two candidates from opposite ends of the political spectrum: the conservative José Antonio Kast, and the leftist Gabriel Boric. While closet wants to cut taxes and public spending, Boric It is betting on a greater state presence, higher taxes and more equality.

“As we have never seen before in other elections, they are somehow facing two ways and two models of how to economically address the challenges in Chile“, said Sergio Lehmann, Chief Economist of the Banco de Crédito e Inversiones (BCI) in Santiago.

“Regarding other elections, this gaze of consensus, of seeking agreements in some way, is now somewhat absent. That is why greater tension and greater uncertainty are recognized”He added.

In the event that no presidential candidate receives more than 50% of the votes, there will be a second round scheduled for December 19. On Sunday, in a new test for political parties, Chileans will also go to the polls to elect new deputies for the 155-member Lower House and 27 Senate seats. Voting also precedes presidential elections in Colombia and Brazil next year, which are shaping up to develop amid political tensions.

For their part, investors remain vigilant as one of the richest countries in Latin America faces unprecedented uncertainty. In addition to the elections, Chile is rewriting its Constitution inherited from the times of Pinochet, which while it has underpinned three decades of growth, has also fueled inequality.

In recent months, financial markets have swung wildly as Chile debates the future of an economic model developed by the so-called Chicago Boys during the 1970s and 1980s. Disciples of the Professor Milton Friedman from the University of Chicago, who advocated for open market policies that include economic deregulation and privatization.

Earlier this year, Chilean shares plummeted following the result of a vote to select members of the Constitutional Convention, charged with drafting the new Magna Carta, only to surge a few months later after a major Party presidential candidate Communist was overthrown in a primary election.

The peso has fallen 3.8% this week alone, and has fallen 14.5% this year, trailing only Turkey and Argentina as the worst currency among their emerging market peers.

Older voters

The centrist candidates, the senator Yasna Provoste and the former Minister of Social Development Sebastian Sichel, are backed by traditional coalitions that have lost favor with voters after ruling the country for the past three decades. Despite the fact that they rank last in the polls, these contenders cannot be ruled out.

Both have shown a willingness to form broad alliances in Congress, a gesture that should resonate with voters, he said. Pamela figueroa, political scientist at the University of Santiago. Additionally, this year’s surveys are less reliable after the pandemic forced some of these to be conducted over the phone rather than in person.

“It seems to me that it is more relevant to look at other data”Said Figueroa. “In the 2020 and 2021 elections, a significant percentage of people over 55 years of age did not turn out to vote. And probably if those people vote in this election, there will be a greater participation of people who have options for the center. Kast and Boric also have serious deficiencies among voters”.

“Kast’s free-market beliefs seem out of place with the mood of the population“, wrote Nicholas Watson, managing director of Teneo, in a November 11 investigative note, while noting that the plans to “taxes and expenses” from Boric They could also be out of tune given high inflation.

Imminent challenges

Regardless of Sunday’s results, the next president of Chile you will face a number of challenges.

Next year, economic growth will slow to about 2% from about 11% in 2021, according to the central bank. Analysts, including Lehmann from BCI, they warn that higher interest rates, rising inflation and the end of emergency stimulus will lead to a recession later in 2022.

The sharp slowdown could reactivate social unrest. In October 2019, mass protests first erupted as protests for increased subway fares morphed into a broader movement demanding better services, from healthcare to pensions.

More recently, the second anniversary of that uprising was marked by violent protests that left two dead and 450 arrested.

This week, President Sebastián Piñera survived a second impeachment attempt with votes divided along coalition lines. What ended up being a new sign of the polarization and tensions that permeate Chilean society, which, in turn, could result in a new fragmented Congress.

“What is at stake in the elections this Sunday is governance“, said Marco Moreno, dean of the government school of the Central University. “This is the crossroads that many still fail to understand clearly. What is at stake is how to face a complex scenario ”.