Chile’s presidential election will now go to a second-round run-off between business-friendly Sebastián Piñera and leftist Alejandro Guillier. Whilst Piñera remains a slight favourite, strong support for Guillier will ensure a close contest. Chile is likely to experience a brightening economic outlook regardless of the result, although a Piñera victory would provide upside potential to the infrastructure sector.
Opposition candidate and former president Sebastián Piñera secured the most votes in Chile’s 19 November 2017 presidential election, receiving a 36.6% vote share. However, this was not enough to achieve a first round victory, meaning that Piñera will now face a run-off on 17 December 2017 against second-placed Alejandro Guillier. Guillier’s strong performance was unexpected, complicating Piñera’s path back to the presidency. The second-round will be closely contested, although Piñera will remain a slight favourite and much will depend on whether smaller leftist parties now support Guillier.
There were some isolated incidents of civil unrest on polling day. On 19 November 2017, demonstrators forced entry into Piñera’s campaign headquarters, leading to over 20 arrests. In Araucanía, a number of people set a bus on fire that was transporting voters to polling stations. However, incidents of unrest were limited and in the run-up to the second-round vote, further incidents will pose only a limited risk of property damage and business interruption.
The most significant protest risks in Chile stem from student-led demonstrations against education reform. In September 2017, tens of thousands of students marched in various cities as education reform was being voted on in Congress. The police deployed tear gas and water cannons, whilst protestors set up roadblocks in Santiago. Student protests bring an elevated risk of property damage for businesses located in central Santiago and other urban centres.
Regardless of the election outcome, Chile’s economic outlook is expected to brighten. Growth is forecasted at 2.8% in 2018, up from an estimated 1.3% in 2017. Stronger economic prospects will be driven by the mining sector, as recovering copper prices support production.
Copper prices are forecasted to average USD 6,100/tonne in 2018, from USD 4,870/tonne in 2016. The sector is also attracting renewed foreign investment. In August 2017, BHP announced a USD 2.5 billion expansion of its Spence mine.
Chile’s sovereign credit profile will remain strong in the one-year outlook, despite a ratings downgrade by Fitch in August 2017. The ratings agency cited a sustained increase in public debt as a key driver of the downgrade. Chile’s general government debt is forecasted to reach 30% of GDP in 2019, from 21% in 2016. However, debt remains low when compared to similarly rated peers and the budget deficit is expected to narrow in the coming years. The deficit is forecasted at 2.0% of GDP in 2018, from 2.7% in 2016. Both presidential candidates would likely maintain a policy of fiscal consolidation, although public pressure for greater public expenditures may see spending creep up.
A Piñera presidency would support growth in Chile’s construction sector. Piñera’s manifesto pledges USD 30 billion in infrastructure investment, through both public and private spending, over the next 8 years. Initiatives include the retendering of 1,500 km of road concessions, which would be expected to generate USD 2.5 billion in investment. Investor confidence will be further bolstered by Piñera’s business-friendly approach to regulation. He has criticised the current government’s stringent approach to environmental legislation, which has blocked a number of infrastructure projects, including Andes Iron’s USD 2.5 billion iron ore project. As a result, the construction sector is expected to return to growth in 2018, having contracted by an estimated 2.4% in 2017.
If Guillier were to secure the presidency, improvements to the regulatory environment would be less forthcoming. Whilst Guillier has pledged USD 20 billion in infrastructure investment between 2018 and 2022, he would be less willing to amend labour and tax laws introduced by outgoing President Michelle Bachelet. Guillier supports the continued implementation of 2014 tax reform, which raised corporate tax from 20% to 27%. This may deter private investment and undermine construction sector growth.
Regardless of the election result, the incoming president may be forced to compromise on key policy positions. Legislative elections, also held on 19 November 2017, resulted in a highly divided Congress. No coalition holds more than 47.1% of seats in either house. This could weigh on both Piñera and Guillier’s ability to implement policy.
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In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Chile, Saudi Arabia, South Africa and Cameroon, all of which have been the subject of recent enquiries from JLT's client base.
The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.
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