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Chile Political Overview: Elections and its economy

It can be difficult for foreigners to find information (in English) regarding the upcoming elections in Chile. BNamericas has recently released a new report that outlines political risk in different Latin American countries. The aim of the report is to track and put into perspective all political news that impacts the real economy.

Below we have summarized some of the main points from the report:.

Chile is Latin America’s most stable country but is going through a challenging period marked by low growth and overwhelming disapproval of the current government of Michelle Bachelet.

Presidential elections will be held on November 19. In the latest poll by local pollster Adimark, the right- leaning ex-president Sebastian Piñera, 67, is in the lead, with 31% of respondents saying they would vote for him, followed by 64-year-old independent Alejandro Guiller, at 15%. Next is leftist Beatriz Sanchez, at 13%.

In order to avoid a two-candidate runoff on December 17, the winning candidate would have to win more than 50% of the first-round vote, which at the moment appears unlikely. In Chile, presidents cannot run for consecutive

In Chile, presidents cannot run for consecutive terms but can run again. If Piñera were to win, it would mean 16 years divided between him and current President Bachelet.

SEBASTIAN PIÑERA

Piñera is a billionaire businessman who served as president from 2010 to 2014 in what is largely considered a boom period in recent Chilean history. He was, of course, aided by record-high copper prices. It is also worth noting that while the country performed well, he had generally low approval ratings. He resoundingly won his Chile Vamos Coalition’s primary in early July and has since shot up in the polls. His platform includes An overhaul of tax policy to spur investment, GDP expansion, and innovation, with the aim of “doubling growth.” This includes a corporate tax rate “at average levels within the OECD.” A revision of labor laws. A public-private infrastructure program worth US$20 billion over 8 years. A perfection of the private pension system while keeping it in place. The ex-president has also said he would look to dismantle the controversial Transantiago transport system.

ALEJANDRO GUILLIER

Alejandro Guillier is a left-leaning TV and radio journalist and current senator of Antofagasta who is running as an independent. He has lost a lot of ground in recent months in polling.

His platform includes: His platform includes: To spur growth, he calls on moving away from a dependence on raw materials and towards diversification.

A focus on “strengthening production and infrastructure.” A new state pension plan to compete with a private system.

A continued push to support green energy.

 

 

 

 

BEATRIZ SANCHEZ

Beatriz de Jesús Sánchez Muñoz is a Chilean journalist and politician. She has worked in radio and television since the 1990’s.

Beatriz de Jesús Sánchez Muñoz is a Chilean journalist and politician.

She has worked in radio and television since the 1990’s.

 

 

 

MACRO

Structural efficiency improvements through innovation and end-to-end integration of operations is key. As Codelco CEO Nelson Pizarro noted earlier this year, “only with competitiveness” can miners face long term market uncertainties. One way companies have sought efficiencies and risk reduction in Chile is through collaboration, such as Goldcorp and Teck combining two projects into Nueva Unión or Teck and Collahuasi looking at sharing a port. Growth has slowed in Chile and is expected to hit 1.5% this year, after growing 1.6% in 2016 and 2.3% in 2015.Over the last three decades, growth has averaged around 5%.

The Chilean peso has lost considerable ground to the dollar in the last five years. At end-2012, the dollar traded at 479 Chilean pesos. Today, its value is 655 pesos and has generally stayed within the 650-700 pesos band in the past 24 months.

Inflation remains stable in Chile. Since peaking at 10% during the 2009 financial crisis, annual inflation has remained between 2-5% and was at 1.7% year-on-year in June. The Central Bank kept the benchmark interest rate unchanged at 2.5% in July, its lowest level since September 2010.

Copper prices are at their highest levels since early 2015, at US$2.75/lb. This is still a far cry from 2011, when they nudged close to US$$4.5/lb, but is a considerable improvement on average prices in 2015 and 2016 of close to US$2/lb. Chile is the world’s largest copper producer and 47% of its exports were copper – based in 2016 (in 2010, this figure was 56%).

MINING

2017 started with the 44-day strike at the Escondida mine. Workers returned to the mine after invoking a rarely used legal provision that extends the existing contract for 18 months, a poor outcome for both sides that leaves significant risk ahead when it comes time to revisit the contract in 2018 under the new labor rules.

Chile is losing some ground in terms of its general reputation as a good place to do mining but remains attractive overall in regional as well as global terms. The country’s unrivaled copper reserves mean the majors already invested here, even if the changing operational context presents new challenges. Indeed, they must invest even to maintain production levels as deposits age. This simple fact will form the basis for Chile’s mining investment to continue at one of the highest rates in Latin America despite the difficulties.

Structural efficiency improvements through innovation and end-to-end integration of operations is key. As Codelco CEO Nelson Pizarro noted earlier this year, “only with competitiveness” can miners face long term market uncertainties. One way companies have sought efficiencies and risk reduction in Chile is through collaboration, such as Goldcorp and Teck combining two projects into Nueva Unión or Teck and Collahuasi looking at sharing a port.

ENERGY

Chile remains a global leader in renewable energy where it has enjoyed a boom in the last four years. But financing for power projects is almost impossible without a long term PPA. With the mining industry contracting, this means securing a contract in a highly-competitive government-sponsored auction is essential.

In the immediate future, perhaps the biggest question is whether – and if so, how – the government adjusts the bidding rules for upcoming power auctions. Developers of conventional projects are likely to lobby strongly for changes in their favor, and it wouldn’t be unreasonable to expect the same of renewable energy firms.

While once vociferous protests have slowed, some projects, just as AES Gener’s Alto Maipo project have been severely delayed (the project will likely be scrapped).

A recent extended power outage in capital Santiago exposes the outdated distribution system and need for infrastructure upgrades.

Source: Harris Gomez Group Legal Advisors

If you are interested or need any assistance, please contact Cody McFarlane – [email protected]

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Geoffrey McRae

About Geoffrey McRae

Geoffrey McRae is the founder of GTSA - Marketing. He is a New Zealander with a strong Agro-business and Real Estate background spanning over 30 years both in his own country and South America. I hope you enjoy reading our news site. Please share it on your social media below.

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