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The "yes" option for a new constitution won the 25 October
referendum with 78.28% of the vote, versus 21.72% for the option
"no". The constituent body chosen to draft the new document will be
a Constituent Convention (a 155-member body elected by popular
vote), which obtained 79.99% of the vote, ahead of a Mixed
Convention (172 members, half elected and half parliamentarians
chosen by Congress), with 21.01%. Elections for the Constituent
Convention are scheduled for April 2021.
A new constitution is likely to increase the role of the state
in the economy, particularly in the provision of basic services.
Launching a process to draft a new constitution was a key promise
by President Sebastián Piñera following the violent unrest that
started in October 2019 over social grievances. The existing
constitution, established in 1980, is considered illegitimate by
large sections of the population and politicians because it was
drafted under the dictatorship of Augusto Pinochet. The new
constitution is likely to increase the role of the state in the
economy, transitioning from a "subsidiary state" - which provides
services where the private sector cannot - to a "welfare state",
which guarantees access to quality basic services to all the
population.
Property rights and the ownership of natural resources are
likely to be reviewed. Property rights are enshrined in the 1980
constitution, with high compensation required for expropriated
property. A redrafted constitution is likely to strengthen the role
of the state to limit property rights that affect basic services
and are of public use, such as public healthcare, national
security, and the environment. This is primarily likely to affect
water rights, which in Chile are private and permanent and would go
alongside proposed changes to the water code and a glacier
protection law, both bills currently in Congress. Lithium is
classed as a "strategic mineral" and does not allow concessions.
Therefore, only the state, state-owned companies, or private
companies operating under partnerships with the Chilean Production
Development Corporation (CORFO) can develop the mineral. The
constitutional process is likely to open a debate on whether to
fully nationalise the sector or allow complete private involvement
via concessions, but maintaining its special status is the most
likely scenario. For copper, Chile's main export, a new
constitution is likely to protect the national status of
state-owned company Codelco, while continuing to allow private
investment.
Presidential powers likely to be reduced. The Chilean president
has strong prerogatives, such as veto and decree powers, and
exclusive competence to present legislation on certain issues, such
as taxes and administration of the budget. Some of these powers are
likely to be reduced to balance the powers with the legislature.
The role of the Constitutional Court (Tribunal Constitucional: TC)
is also likely to be reviewed, as it has the power to repeal
legislation approved by Congress. For example, in 2016, it ruled
unconstitutional the provision of a labour reform by former
president Michelle Bachelet that would have substantially increased
the power of unions. There are also proposals to install a
semi-presidential system.
The constitutional redraft will significantly raise investor
uncertainty, but the composition of the Constituent Convention will
help prevent significant regulatory changes. The constitutional
process threatens to change the regulatory framework that has
characterised Chile's business-friendly environment. However, the
election of the members of the Constituent Convention will be done
by districts, which suggests that the body will have a similar
composition as Congress, with an overall similar representation of
the main political forces in Congress. Representatives from the
ruling centre-right coalition Chile Vamos (Chile Let's Go) and
moderate elements of the centre-left, such as the Christian
Democrats (Democracia Cristiana: DC) and Convergencia Progresista,
will water down any significant changes on a new constitution or
any attempts to diminish respect for institutions, the rule of law
or international treaties. In addition, the two-thirds majority
that the constituent body will be required to approve each article
of the new constitution means that the basic concept of private
property is likely to be preserved. In addition, the numerous
bilateral investment treaties signed by Chile over the last 30
years offer additional protection for foreign investors that did
not exist when the existing constitution was drafted.
Indicators of changing risk environment
Increasing risk
The left-wing opposition Broad Front (Frente Amplio: FA) gets
significant representation in the Constituent Convention, likely
pushing for more radical changes, such as the nationalisation of
development of natural resources.
Widespread anti-government protests re-emerge at a similar
strength as in October 2019, indicating that the set-up of a
Constituent Convention failed to quell unrest.
The FA or the Communist Party (Partido Comunista: PC) win the
presidential election in November 2021, likely steering the
constitution into one that significantly increases the role of the
state in the economy.
Decreasing risk
The business sector gets significant representation in the
Constituent Convention, increasing the likelihood of it blocking
policy that would undermine the business environment.
The ruling coalition Chile Vamos has a strong showing in the
legislative elections in November 2021 indicating that a
state-interventionist agenda is likely to be diluted, as the
Constitution needs to be approved by Congress.
Chile Vamos wins the presidential election in November 2021,
steering the constitution into one that continues to protect
property rights and the involvement of the private sector in almost
all sectors of the economy.
Posted 29 October 2020 by Carla Selman, Senior Research Analyst, Country Risk, IHS Markit