I often write a brief update on LinkedIn about the economy and national events in South America. Usually my articles about Chile have been optimistic. However, even setting aside the global impact of the Corona virus, the outlook for March and April is not promising.
People outside of the country might think the protests in Chile have ended as they have now left the global headlines. But I believe there will be more civil unrest in March than we saw in last October’s uprising.
In March, Chileans return from their summer break and students go back to school. Unlike other countries in the southern hemisphere, Chileans go on holidays in February and not January. So, it could be said that the protesters have been on holiday.
April will see a plebiscite (or referendum) for a proposed change in the Chilean constitution, and protesters will undoubtedly want to make their voices heard in the weeks leading up to that.
International investors have expressed concern about the plebiscite in case it leads to legislation that might threaten property rights. However, the likes of Scotiabank remain bullish, pointing to a rebound in export and power generation activity in January. They argue that some projects have progressed too far for investors to withdraw their support.
Mark Cutifani, executive director of Anglo American, is cautious but optimistic, expressing the hope that the ‘new Magna Carta’ of the country would not impact the mining industry, which continues to be integral to the country’s growth.
He recently said, “One thing we know for certain is that Chile knows how important mining is for this country and I would be greatly surprised if they did something that would impact foreign investment.”
Chile has been the Latin American country with the best risk rating for decades and is the only South American nation admitted to the OECD. Moody’s maintained a stable outlook for Chile in December, but in early February, the Economist Intelligence Unit cited “policy uncertainty” due to the potential constitutional reform.
Oxford Economics predicted a downgrade for Chile in 2020 due to uncertainty. This prediction was based on the fiscal effort and public expenditure that will be required for the reconstruction following the October uprising, together with reforms to the country’s pension system.
There have, however, been some notable examples of bullish behaviour, from also Santander Bank and Icelandic investor Björgólfur Thor Björgólfsson’s recent USD 1 billion plus deals for WOM telecom.
I anticipate a ‘No Change’ win in April, as people realise that the importance of foreign investment in Chile’s progress. But as recent votes and referendums in other parts of the world have taught us, it pays to prepare for the unexpected.
In the meantime, I expect the protesters to remain indignant until May, and perhaps even until winter. Unless of course fear of the coronavirus succeeds in keeping people off the streets, where the authorities have notably failed.
Fernando Rodriguez is Swann’s General Manager in South America.
He is based in our Santiago office.
Image (c) Shutterstock / Roberto Baeza