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Chileans voted on 15-16 May to choose regional governors, local
authorities, and, more importantly, the 155 members of the
constituent convention, the body in charge of drafting a new
constitution, following a referendum in October 2020. The ruling
center-right coalition Let's Go for Chile (Vamos por Chile) and its
allies will have 37 seats; the center-left's Approval List (Lista
del Apruebo) will have 25; and the left-wing Approve Dignity
(Apruebo Dignidad), which gathers the Broad Front (Frente Amplio:
FA) coalition and the Communist Party, will have 28. Independent
candidates will have a significant share, with at least 35, while
17 seats are reserved for indigenous groups.
The fragmentation and the high number of independent
members of the convention will require agreements, with delays
likely.
Each norm of the new constitution must be approved by two-thirds
of the votes. Since no coalition received that share, they will
have to seek agreements, which is likely to lead to a more
consensual document, but will risk delays to the proposed timeline
as the convention will have a maximum of 12 months (9 months
renewable for another 3) to come up with the final draft. Then the
document will be put forward for another referendum and, if
accepted, would then go to Congress for approval.
The state will have an increased role in economic
activity and the provision of basic services.
There is a wide consensus that a new constitution will increase
the role of the state, mainly when it comes to guaranteeing basic
rights (such as education, healthcare, and pensions) and the
provision of basic services (including electricity and water).
Constituent members are also likely to discuss limiting ownership
by state-owned foreign companies in those services. A proposal to
eliminate the autonomy of the central bank will very likely lack
sufficient support. Changing the existing constitution, which
enshrines property rights and allows private investment in almost
all economic sectors, is likely to delay investment decisions. The
significant number of independent constituent members, who share
diverse views - and often unknown to the public, will raise
uncertainty.
Private-sector investment is likely to continue to be
allowed in copper mining and new energy technologies, with water
rights likely to be reviewed.
Major state interventionism remains unlikely as this would not
be supported by the center-right and the moderate center-left
parties, amounting to 62 seats. No party or group has openly
proposed either nationalizing or privatizing copper mining, Chile's
largest sector, and convention members are likely to support the
continued role of private companies operating alongside state-owned
mining firm CODELCO, although with a likely increase in taxation.
Despite calls from the FA to nationalize lithium, it is likely to
maintain its status as a "strategic mineral", meaning that any
private-sector involvement needs to be carried out through a
contract with the state. Changes are likely to be proposed
regarding mining property, by which the holder currently maintains
a concession as long as an annual fee is paid, regardless of
whether the holder has developed the resources. Private investment
in renewable energy and green hydrogen is likely to continue as any
government will seek to reduce the country's dependence on imports.
Left-wing parties are likely to push for a greater role for
state-owned companies in these fields, such as energy firm ENAP and
CODELCO, and reduce subsidies, but are unlikely to prevent the
involvement of foreign technical expertise. Property rights are
likely to be widely maintained in some form, with the support of
Let's Go for Chile and Approval List. An exception would be water
rights, which are private and permanent. Water is likely to be
declared a public good and, as such, to be prioritized for
sanitation and human consumption over economic activities.
The new constitution is very likely to include reduced
powers for the presidency.
There is consensus among the main parties on the need to reduce
the power of the presidency, which currently has powers of veto and
decree, and the exclusive faculty to rule on tax matters. With
those powers removed, the executive would be unable to challenge at
the Constitutional Court (Tribunal Constitucional: TC) any
opposition-sponsored tax increases, as is currently the case.
Suggested changes are also likely to include establishing the
position of a prime minister, or equivalent, chosen by or with the
support of Congress. The role of the TC is highly likely to be
amended, reducing its capacity to block policy that already has
legislative approval. Initiatives such as installing a
parliamentarian system or a federal state are highly unlikely to
succeed, although increased autonomy for the regions is likely to
win support. Labour rights are also likely to be considered for
explicit inclusion in the draft, with some groups demanding
collective bargaining rights by sector, which is not allowed under
the current constitution.
Constitutional recognition of indigenous populations is
almost certain because of cross-party consensus.
With 17 representatives of indigenous groups taking part in the
convention, policies such as effective enforcement of indigenous
consultation prior to the development of any project are likely to
be included. These would increase the likelihood of delays,
particularly for mining, energy, and construction, but would
strengthen the social license to operate, reducing the risk of
cases being challenged at courts afterward. Such recognition,
however, is unlikely to be sufficient to reduce violence by Mapuche
groups in southern Chile over land restitution, as they are
unlikely to be granted territorial autonomy.
Enhanced protection of the environment is likely to
increase scrutiny over projects. There is consensus that
the Constitution must recognize the need to protect the
environment. This will raise environmental standards when
undertaking major projects, particularly in mining, energy, and
construction, potentially increasing bureaucratic steps and
regulatory scrutiny.
Posted 21 May 2021 by Carla Selman, Principal Research Analyst, Country Risk, S&P Global Market Intelligence