Chile’s strengths dip as government suffers electoral defeat | Latin America News

The benchmark exchange closed 9.3% lower, the biggest drop since the pandemic began in March of last year, while the peso fell 2.3%.

Chilean assets plunged after the ruling coalition suffered a surprise beating in the election of a constituent assembly, placing the drafting of a new charter firmly in the hands of the left.

The benchmark exchange closed 9.3% lower, the biggest drop since the pandemic began in March of last year, while the peso fell 2.3%. Yields on Chilean peso bonds due 2030 jumped 22 basis points to 3.82%.

Candidates from the ruling coalition won just 37 of the 155 seats in the assembly tasked with drafting the new constitution, according to data consultancy Unholster. Candidates not affiliated with a political party won 65 seats. The result means the ruling coalition falls short of the one-third threshold it needed to block unfavorable market clauses in the new charter.

Chileans from left-wing parties celebrate victory in this weekend’s election in Santiago.

“This weekend’s Constitutional Assembly elections remind us that left-wing candidates who are less pro-market may very well be successful in the post-pandemic era,” said Guido Chamorro, portfolio manager at Pictet Asset Management Ltd . in London.

The results reflect the growing rejection of traditional parties, adding to the uncertainty as one of Latin America’s richest countries rewrites its laws in the wake of the worst social unrest in a generation. These are the rules that have helped spur more than three decades of growth, while simultaneously fueling social discontent and inequality.

The main points of debate when rewriting should include natural resources, pensions and social services. More immediately, the results could add momentum to a copper royalty bill due to go to the Senate in the coming weeks, which would create one of the industry’s heaviest tax burdens. global mining.

“The election results put a downward bias on growth this year,” said Sergio Lehmann, chief economist at Banco de Credito e Inversiones in Santiago. “There is greater uncertainty about the economic impact in 2022 and 2023. A constitutional process with a lot of polarization can hurt investments.”

Radical left

About 6.4 million people took part in the elections, a turnout of 43%, according to data from the Servel electoral office. The figure was lower than the government’s forecast of 7 million votes.

Left-wing and little-known candidates also won a series of surprises in local elections. The conservative mayor of downtown Santiago lost his re-election to a Communist Party candidate, while Karina Oliva, of the far-left alliance Frente Amplio, qualified for a second round of voting for the governor of the metropolitan region of Santiago.

The candidates for the assembly of the left-wing group Lista Del Pueblo, or The People’s List, were the big winners in the weekend’s vote, according to Cristobal Huneeus, director of data science at Unholster in Santiago.

“Among the most important issues they support are human rights, civil society, the environment and the idea that the current economy is not working for people,” he said. -he declares.

Going forward, election results are expected to stimulate possible presidential candidacies from left-wing candidates, including MP Gabriel Boric and Daniel Jadue, mayor of Recoleta district in Santiago, Huneeus said. Chileans will vote for the next head of state in November.

Clear signals

Last year, citizens overwhelmingly decided to abandon the current constitution implemented during the dictatorship of Augusto Pinochet. This was a key demand from protesters who took to the streets from October 2019, initially for a hike in metro fares before expanding demands to include better public services.

The election was originally scheduled for April, but lawmakers voted to postpone it until May, as daily Covid-19 infections and hospitalizations soared to unprecedented highs. The Constitutional Assembly will now have up to a year to draft the new charter.

Chile will be able to withstand significant political and economic uncertainties after the rating downgrade in October 2020, according to an emailed statement from Fitch Ratings, which describes the country’s current rating at A- as “very strong “.

The candidates backed by the government are not the only ones to have been affected. Moderate and center-left parties such as the Socialists and Christian Democrats won only 14% of the Assembly’s vote.

“The clearest signals to date are that the right is weaker than expected and the center is gone,” said Jennifer Pribble, associate professor of political science at the University of Richmond.

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