On 19 December 2021 Gabriel Boric won the runoff with almost 56% of the vote. The next day the Chilean peso and stock market fell sharply. What it means for businesses with interests in Chile.
Gabriel Boric, 35, a former student leader and member of the lower house since 2014, won the runoff of Chile’s presidential election on Sunday 19 December 2021. With 99.86% of polling stations counted, he took 55.87% of the vote, about 4.6 million votes, against 44.13% for José Antonio Kast, the candidate of the right. Kast conceded that same evening, after calling Boric to congratulate him.
More than 8.3 million people voted, the highest number recorded in a Chilean election, according to Servel data reported by the Chilean press. Boric will take office on 11 March 2022, for a four-year term.
The market reaction
On Monday 20 December, the IPSA, the main index of the Santiago stock exchange, fell 6.18% to 4,088 points, its lowest level since 22 October. The biggest falls were for the lithium miner SQM (more than 14%), the pension manager Provida (12%), Falabella (more than 8%), Habitat and CMPC. The dollar rose about 30 pesos, the biggest daily rise since November 2008, and reached a record high against the peso, at around 876 pesos to the dollar.
Analysts attributed the reaction to investors’ fear that his programme will raise taxes, increase social spending and tighten regulation of business, and to the fact that the margin over Kast was larger than the market had priced in. During the campaign, Boric proposed raising taxes on the richest to fund social services and reduce inequality, and in the final days he promised gradual and fiscally responsible changes.
Two institutional factors add to that uncertainty: a Congress split between left and right, and a Constitutional Convention, elected in May 2021, that is drafting a new constitution. According to the analysts cited by La Tercera, large long-term investments are unlikely to be decided until that framework is clear. Chilean central bank data that the same newspaper cites show that capital outflows by companies and households in the 24 months to August came close to $30 billion, the highest since comparable records began, in 2003.
Spanish companies in Chile
Spain is one of the main foreign investors in Chile. According to the Chilean government (InvestChile), its investment stock was about $36.1 billion in 2018, the second largest in the country after the United States; other sources give different figures depending on the year and the method of calculation. Spanish companies with operations in the country include Telefónica, Santander, Acciona, Sacyr, Red Eléctrica and Agbar, according to a list InvestChile published in 2020.
The effect on each company depends on its exposure: a group with revenue and costs in Chilean pesos sees the exchange rate alter its value in euros; one with regulated contracts depends on the regulatory framework that is adopted; a bank subsidiary, on the course of lending and activity. It is too early to know how long the market reaction will last: it will depend, among other things, on the appointments to the economic team and on the programme presented to Congress.
What to review
For a company or a family with interests in Chile (subsidiaries, investments, property, suppliers or customers), it is worth reviewing the exposure to the exchange rate between the Chilean peso and the euro, contracts in local currency and payment terms. It is also worth following the calendar: the handover of power will be on 11 March 2022. If it affects you, ask your adviser how to apply it.
Elections are decided in a day; their economic effects only become known over time.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
