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Mar 16, 2018
New Chilean government
On 11 March, Sebastián Piñera from the centre-right Chile Vamos (Chile Let's Go) coalition took office for a second term.
- The government will seek to reduce corporate taxes from 27% to 25%, and amend labour laws by clarifying the functioning of negotiating groups and definition of "minimum services".
- A proposed agency to expedite procedures is likely to reduce bureaucracy for large projects in mining, renewable energies and infrastructure.
- The ruling coalition does not have a majority in Congress so will have to seek alliances with moderate sectors of the opposition, reducing the likelihood of structural changes.
President Sebastián Piñera from the centre-right Chile Vamos coalition was inaugurated for another term in office (his first was during 2010-2014), after winning the 17 December 2017 run-off against Senator Alejandro Guillier. Piñera returns to power aiming to double economic growth (1.5% in 2017, and IHS Markit expects this to increase to 3% in 2018), and attracting foreign investment, which dropped substantially during the previous Michelle Bachelet administration, registering a 40% decline in 2016.
His proposals include establishing a new agency (Oficina de Grandes Proyectos), in order to reduce bureaucracy facing investors, and its remit will include expediting permitting procedures for large projects, while enforcing environmental regulations.
Reactivating mining investment will be a priority
Mining Minister Baldo Prokurica reiterated on 11 March that the government will seek to reactivate stalled mining projects worth USD50 billion, and will work towards a new National Mining Policy for 2018-2050. Piñera's manifesto includes reviewing mining regulations to reduce legal ambiguity, and is likely to reduce the extent of political institutions' decision-making authority, including that of the Council of Ministers. This has become a source of concern for mining-sector investors, in particular following the government's rejection of the USD2.5-billion iron-ore Dominga. The government additionally plans to encourage the use of shared infrastructure between mining projects (desalination plants, pipelines, ports, aqueducts and transport systems) and also increase the share of mining royalties allocated to regional governments. Although not on the government programme, IHS Markit sources in Chile's private sector reported that Piñera's government also appeared to be open to reviewing the existing mining concession system, by which large areas can be allocated to one concession holder, limiting mining development and hindering the entry of new investors, which would be welcome by the private sector, as it would allow for more competition.
Renewable energy projects and infrastructure
In line with the outgoing government's policies, the incoming administration is unlikely to change long-term development plans to promote renewable energies, including hydroelectric power, or the goal of reaching 70% of electric generation from renewable sources by 2050. In January 2018, the Bachelet government reached an agreement with Chile's electric power generators' association (including AES Gener, Colbún, Enel and Engie) to stop building coal-fired plants, unless they have carbon capture and storage technology. Infrastructure will also be a key sector, with Piñera announcing a USD30-billion infrastructure plan via concessions for the next eight years for road improvements, airports and ports upgrades and constructions, hospitals, and urban public transport.
The Piñera government is also likely to review a proposed water code bill currently in Congress, which replaces perpetual water rights with 30-year concessions. This proposal however, has been heavily criticised by the private sector, who likened it to expropriation. The centre-right parties are likely to attempt to delay or stall discussions on this issue.
Attempts to roll back regulations implemented by the previous administration
Finance Minister Felipe Larraín announced a tax reform to be sent to Congress over the coming months, aimed at reviewing changes approved by a 2014 tax reform. The new government will seek to reduce corporate tax from 27 to 25%, reintroduce incentives for investment, and simplify the existing dual-tax system, which has proven burdensome. Piñera has also pledged to review a labour law that entered into force in April 2017, strengthening unions by banning the replacement of striking workers and setting the last collective agreement as the "baseline" for upcoming negotiations. Piñera will not have a majority in Congress to reverse these changes, so will focus instead on less contentious issues such as attempting to clearly define "minimum services" (those that cannot be disrupted during strikes), and how negotiating groups outside labour unions ought to operate.
Few days before finishing her term, Bachelet submitted to Congress a bill for a new constitution, which seeks to increase the role of the state in the economy and society, as well as consolidating social changes achieved during her government, by for example guaranteeing the right to strike or to free education, as well as extending the presidential term and reducing legislative quorums to approve policy. Piñera is highly unlikely to pursue a new constitution or any legislation that increases the role of the state in the economy, but will probably consider some constitutional amendments, including extending the presidential term from four to six years, or allowing for consecutive re-election, and reducing the number of parliamentarians.
Outlook and implications
The ruling coalition will face a fragmented Congress where it does not hold a majority, which is likely to delay discussions on pro-business regulation. The government will have to build alliances in order to introduce new regulations and adopt new policies. To achieve this, the government will probably reach out to moderate sectors of the opposition centre-left block Nueva Mayoría (New Majority: NM), specifically the Christian Democratic Party (Democracica Cristiana: DC). The government is likely to succeed in implementing proposed tax cuts, some amendments to the labour laws, and introduction of a proposed pension reform, which increases contributions (adding a 4% paid by the employer), given that these three proposals already enjoy a degree of cross-party consensus. More major reform or completely rolling back Bachelet's reforms is unlikely. The government will instead focus on advancing measures which do not require congressional approval, such as easing permit acquisition procedures, which is likely to be implemented over the coming months.
The government successfully forming alliances with sectors of the DC or independent legislators on the issues that are likely to be first submitted to Congress such as tax and pension changes would indicate improved likelihood of constructive discussions, facilitating passing policy.The left-wing Frente Amplio (Broad Front: FA), a new force in Congress, reaching agreements with the more radical sectors of the NM, would indicate growing opposition to proposed reforms and increased likelihood of the opposition blocking President Piñera's agenda.
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