More recently Chile has also been admired for its handling of the COVID 19 pandemic. From the onset in early 2020, it managed a well communicated and strong program of quarantine and mobility restrictions. By the end of 2021 more than 90% of the population had been vaccinated with at least three doses.
However, after this long period of stability, Chile is entering an era of uncertainty. Driven by the outbreak of widespread social unrest at the end of 2019 Chile is now in the process of drafting a new constitution, and the election of Gabriel Boric in the presidential elections of December 2021 reflected voters’ desire for deep socio-economic reform.
The business community are closely watching the new government’s rollout of proposals for change, some of which have already identified reforms in the areas of tax, pensions, working hours and the minimum wage. Some of the perceived and actual risks are captured as follows:
The community led constitutional convention which was formed in 2020 was tasked with drafting a new national constitution to replace the existing one which dates to 1980. There will probably be changes to existing business practices as there is intense social pressure to increase the role of the state in key areas. These include the pension system, state owned enterprises (SOE’s), and access to education and health. It is forecast to include provisions relating to sustainability and climate change.
Many analysts however do not believe a new constitution will radically alter Chile’s political and economic structure. The enabling legislation overseeing the process states that the new text must “respect the character of the Republic of the State of Chile, its democratic model, and any international treaties ratified by Chile currently in force.”
Chile’s sovereign wealth funds, created during President Michele Bachelet’s first government in March 2007, have provided essential support during the financial crisis of 2008, the major earthquakes of 2010 and 2014, and now for the COVID-19 pandemic.
The independent Central Bank has, at least until the exceptional circumstances during 2021, kept inflation low at a target level of around 3%, and fiscal deficits were kept to an average of 2.2% between 2014 and 2019. In 2019 public debt stood at 28% of GDP. Chile ranked 59th in the Ease of Doing Business survey carried out by the World Bank in 2020. It was recognised for enforcing contracts, resolving insolvencies, protecting minority investors, and ease of starting a business.
However Chile continues to carry significant economic risks related to: