Ups and downs in Chilean markets after the election of Gabriel Boric

Chilean markets exhibited great volatility on Monday, hours after the leftist’s victory at the polls. Gabriel Boric, a former student leader who in seven years jumped from occupying a seat in Congress to prevailing in the presidential election with an ambitious social government program.

The ups and downs in the markets were expected by experts after the Chileans chose a deputy from the leftist Frente Amplio supported by the Communist Party the day before as the next leader of the South American country, who won with a comfortable 55.6% of the votes.

The Santiago stock market contracted 7% and by midday it stood at 6.21%, while the dollar jumped 26 pesos, at a record price of 873 pesos, and after several movements it stood at 874 pesos.

“We will have a commitment to fiscal convergence, it was not a campaign slogan, but rather a conviction,” said Boric when asked about the volatility of the markets in the government palace, where he met with the outgoing president. Sebastian Piñera, which invited him to talk about the transfer of government.

Boric comes to power with a government program that welcomed the lawsuits against social and economic inequalities that erupted after a social unrest at the end of 2019, and his ambitious plans have a cost of US $ 12.5 billion, which he plans to finance with the collection of five points of GDP in four years through gradual tax increases that include taxes on the richest, on fuels and the powerful mining of copper.

Economists consulted agree that the main problem it will face is boosting economic growth which, after growing between 11.5% and 12% this year, will decrease to 2% in 2022 and will fall to 0% in 2023, according to projections of the Central bank.

In addition, it will come to the government with an inflation that is around 7%, something not seen in many years by Chileans, accustomed to a rise close to 3%, which is the goal of the Central Bank.

“Investment, the inflationary issue and recovering employment are the three most important issues that the next president must face,” said economist Joseph Ramos, who said that it is “necessary to increase the tax burden by 25%, raise five points of GDP. ; frankly it is unreal ”.

Juan Bravo, an economic analyst at the Diego Portales University, emphasized that growth is a priority. “If the ability to grow is not stimulated, there may be a high level of social discontent due to the lack of opportunities,” he said.

He added that Boric must give a signal to the markets when he appoints his finance minister. “It must be a figure that belongs to a more moderate sector,” he considered.

Carlos Budnevich, an economist at the Universidad de los Andes, declared that among his main challenges are “to recover fiscal discipline, to finance public spending with permanent income.”

“There are so many reforms that are being considered in this program that being able to promote them simultaneously seems to me not very feasible,” he added.

Boric, in his first speech as president-elect the day before, pointed out that “substantive progress to be solid will require broad agreements and to last they have to be step by step … We will take short but firm steps,” he added.

The deputy, who will take office on March 11, is the first elected president who does not belong to a traditional party and whose parliamentary coalition is the smallest since the return of democracy in 1990.

Many of the social policies of his program must be approved by the new Congress, renewed in November, which has a divided Senate and a fragmented Chamber of Deputies, in which between its legislators and those of the center-left it would reach 50% of the votes .

With a few more he could approve a hike in the minimum wage, but he would need more support to push for deeper measures. “The changes are going to require broad agreements so as not to get out of hand,” admitted Boric.