Just how radical will the new President Gabriel Boric, Chile’s new president, turn out to be?

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Many potential investors both local and foreign have been concerned then shocked at the unfolding swing left of Chilean politics with the results of the recent presidential elections. In many ways, it is mirroring US politics which also divided between the almost communist left of the Democratic Party to the anarchist side of the Republican Party. 

 In light of this, we have been searching for feedback from middle-class Chileans of whom my opinion I trust to where Chile might be headed politically and more importantly economically. 

The last presidential elections in Chile were very important since they were like the US choices between two very polarising candidates one from the extreme right, José Antonio Kastand the other from the extreme left Gabriel Boric. 

This of course was a reflection of the voters themselves who were also polarised. The election campaign to obtain the necessary votes between the former and the second round was softened by both candidates towards the centrist voters, allowing the agreements to be made more flexible with potential coalition partners.

Gabriel Boric did better in this process presenting a softer and younger face. 

Never before in Chile has there been such a strong turnout of voters, where the number of eligible voters is just over 15 million, 8.3 million voted, equivalent to approximately 55% of the potential Voters. 

It must remember that voting in Chile is voluntary unlike many other democracies in the region. Also noteworthy is the difference in the number of votes between the two candidates, 55.9% Boric versus 44.1% by Kastand.

The country is facing a very different winner of these elections between the favoured candidate of the first round  ( Kastand ) and that of the second Boric. By approaching the centre (which is more moderate), Boric achieved the triumph over Kastand who was not so flexible which cost him the election.

On the other hand, Congress is considerably more balanced than before. And the Constituent Assembly ( must submit to an exit plebiscite in July 2022 to be approved or rejected) over left-wing changes to the constitution. 

Obviously, immediately after the elections, the Stock Exchange voted with its feet and lowered its indices and the exchange rate dropped. Two weeks later, both indices are slowly approaching pre-election levels, pending the names of the president-elect’s cabinet and some political statements which could drive it either way.

If Boric surrounds himself with a pro-growth/development/investment economic team, it would give a powerful signal that would give the country stability. Of course, Chile has been down this path once before with the communist President Salvador Allende voted in the 70s which ended badly.

The Chilean Congress, which is fragmented among 22 parties can also determine if he is a lame-duck president as the relationship between the presidency, the constitution-writers and legislators will determine how far the country lurches to the left and more instability.

Worryingly since becoming a national deputy in 2014 Boric has ruffled mainstream Congress by showing up with a mohawk, tattoos and—most shocking to some—without wearing a tie showing a lack of respect for the institution itself.

More worryingly, in 2018 he visited a former Communist paramilitary exiled in France who is charged with assassinating Jaime Guzmán, the author of the country’s dictatorship-era constitution.

His initial presidential manifesto included proposals to revise free-trade agreements and require companies to give half their board seats to workers. On the campaign trail he promised that “If Chile was the cradle of neoliberalism, it will also be its grave.”

Many are unconvinced of his latest move to woe the centre voters was sincere. His platform remains radical. He vows to raise taxes by 8% of GDP over two four-year terms and abolish private pension funds. 

He makes grand promises, such as free public transport for all and universal health care funded by a 7% levy on all workers, but shows less enthusiasm for fostering the economic activity that might help pay for such things. 

His original manifesto, which declared itself to be a feminist document, mentions “gender” 90 times but “economic growth” only ten.

On December 20th he promised to cancel a big mining project on environmental grounds. He also supported a policy that would have let Chileans withdraw 10% of their pension savings for the fourth time in a year. 

This would have caused long-term damage to the pension system and increased inflation—which, at 6.7%, is already more than double the central bank’s target.

Conclusion

Certainly, the country risk has increased dramatically in the short term with Boric in power but by watching the human and financial capital outflows one will be able to see what is in store for the economy either positively or negatively as investors domestically or foreign access the risks. Short term it is obviously negative but time will tell if Boric will become more moderate now he is in power or will follow Allende’s mistakes.

About Geoffrey W W McRae

With a highly distinguished career spanning more than three decades across five different countries, New Zealander Geoffrey McRae has established himself as a leading authority on South American real estate, agricultural, and commercial matters. As the founder of Gateway to South America – a real estate consulting group specialising in six South American countries – Geoffrey has developed a reputation for discretion, expertise, and experience that has seen him represent some of the most prestigious clients in the region. His deep knowledge and experience of South American markets have placed him at the forefront of the industry and given him the opportunity to guide and advise with confidence and surety. His long and successful career – which continues to evolve and expand daily – is a testament to his talent, tenacity, and ambition.

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Post available in: English