With Chilean presidential elections now little more than a week away, executives are weighing the implications of an anticipated Bachelet victory on fiscal and energy policy. Former President Bachelet has indicated that if she is re-elected, she will prioritize fiscal reform to generate the revenue needed to increase funding for education, a key part of her campaign platform.
In our view, the Chilean business environment will remain favorable, although multinationals should be planning for higher corporate tax rates and the gradual elimination of the FUT (taxable profit fund), with potentially negative implications for margins and investment on the part of B2B customers. Input costs, including energy and labor, are likely to remain high due to environmentally-related social unrest and historically low unemployment, respectively.
Exchange rate volatility also remains a concern for companies importing into Chile. During the second half of 2013, the Chilean peso has depreciated due to a combination of weaker global demand for copper and expectations about the near-term trajectory of US monetary policy. As the pace of Chinese investment moderates and the US moves to taper quantitative easing, the peso is expected to weaken against the dollar in comparison to its performance in recent years.