The government will not advocate for a third constitutional process, as the intended reforms can be implemented without the approval of a new constitution
On December 17, Chilean citizens rejected the second proposal for a new constitution. This draft, developed by a right-leaning constitutional council, presented a text more conservative than the current constitution. For example, it proposed limiting abortion rights and adopted an anti-immigration stance. Following the results, President Gabriel Boric delivered a speech reaffirming that the government will not advocate for a third process. Therefore, the current constitutional framework is maintained, and the government will focus on securing the approval of the Fiscal Pact and pension reform. Given the discussions surrounding these reforms, clients should continue to engage with influential and potential politicians across the aisle. Moreover, as the economy begins to recover, multinationals should ensure their supply chains are robust to meet surging demand and revise their 2024 targets, considering the downward trend in inflation and lower borrowing costs.
Overview
- Following the processing of nearly all the ballots, the second proposal was rejected by 55.8% of citizens, while 44.2% of voters backed the proposal.
- The voter turnout was 84.4%, slightly lower than the 2022 referendum (86.8%). However, the average voter turnout in the last three mandatory elections (85.3%) has been significantly higher than in previous non-mandatory elections (around 56.7%).
- While the final proposal of the Fiscal Pact has yet to be presented, the reforms are likely to focus on combating tax evasion and avoidance and promoting growth through investment and formalization. The expected changes could involve the prevention and control of using legal loopholes to evade tax obligations and the implementation of an extraordinary regime, which would allow for an instant 50% depreciation on fixed asset investments made within the first year of new projects.
- The government is preparing amendments to the bill for pension reform, which is set for discussion in Q1 2024. Based on recent announcements, the reform will not include eliminating voluntary pension savings tools like Cuenta 2. Also, the additional contribution to a publicly run social security system could be around 4%.
Our View
While the Fiscal Pact and fragmentation in Congress will maintain high uncertainty, President Boric’s announcement that his government will not pursue a third rewrite attempt should reduce regulatory uncertainty in the coming months. We anticipate the approval of the Fiscal Pact by the end of H1 2024, given that the government’s collaboration with the private sector and the opposition has been more effective than the efforts seen during the previously rejected tax reform process. We maintain our view that social disruptions like those registered in 2019 are highly unlikely. Polls indicate that the population wants to conclude the constitutional process. Moreover, new demands, such as prioritizing spending on pensions, healthcare, and security, can be addressed without needing a new constitution. Finally, we continue to expect an economic rebound in 2024 (2.3% YOY) driven mainly by the strong recovery of consumer spending (4.5% YOY), amid lower inflation pressures (yearly average of 3.6%), and higher export growth (2.5% YOY) due to stable copper demand and reduced supply chain disruptions.
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