Why Piñera will face difficulties in improving Chile’s business environment

The unexpected first-round results of Chile’s presidential election resulted in a month full of uncertainty. Most polls indicated a technical tie between Sebastián Piñera (Chile Vamos) and Alejandro Guillier (Nueva Mayoría). FSG maintained its view that Piñera was still the favorite to win the Chilean presidency. In the end, Piñera won by almost ten percentage points – a greater margin than expected. The Chilean peso appreciated by 5% as a result.

Source: Frontier Strategy Group analyst

Piñera will face more difficulties in improving Chile’s business environment than many expect, but should progress moderately on some elements of his agenda

In fact, it will most likely resemble continuity of the previous government, for three overarching reasons:

  • Chile Vamos has no majority in either house of Congress. While Piñera will likely be able to make concessions to more centrist parties to pass the least contentious elements of his economic agenda – such as his massive infrastructure project. However, his administration will struggle to roll-back Bachelet’s labor reform. This is because Piñera’s center-right coalition lacks representation in Congress. Despite the fact that they do have a plurality, it will be nearly impossible for Piñera’s team to change the majority of Bachelet’s reforms because of a lack of support from the opposition and an inability to achieve a majority vote.

Source: Frontier Strategy Group analyst

  • Sebastián Piñera needed to moderate his platform to attract Chilean center voters. For MNCs, it’s important to recognize that Piñera’s final platform was significantly more moderate and pragmatic than his economic platforms from the past. This was a required strategy to win over undecided voters from the first-round. If he does not keep to his promises – such as guaranteeing Bachelet’s education reform – he will face a hostile congress and civil society
  • The moderate elements of Chile Vamos and Nueva Mayoría agree on many policy priorities. The Piñera administration may seek out several quick victories in Congress. Both Chile Vamos and Nueva Mayoría agree on the need for a large infrastructure package and more streamlined mining regulations. Tackling these first could avoid congressional paralysis. However, Chile Vamos will have to negotiate with Nueva Mayoría to pass policy that could improve Chile’s business environment

Actions to take

Now that Chile has entered a period of political clarity, multinationals should consider taking the following actions to prepare for a new government in Chile:

  1. Prepare for a short-term positive shock in domestic demand. B2B and B2C companies should begin to aggressively market to consumers and businesses in search of capturing immediate returns on increased activities generated by the election results
  2. Take advantage of the stronger Chilean currency for your imports priced in US dollars. The Chilean peso should remain strong in the coming months because of robust copper prices and political clarity
  3. Follow the evolution of business confidence in the next two months to gauge the likely near-term impact of Piñera’s election on your business. This indicator will likely improve significantly during this time
  4. Revisit your scenarios for Chile for H2 2018 after the government transition has taken place. FSG is currently conducting analysis to determine the different outcomes that Chile’s market could experience in 2018. If you would like to learn more, please contact your Client Relationship Director

For our latest updates and insights, FSG clients can visit the client portal or contact their Client Services Director for more in-depth briefings. Not a client? Please contact us to learn more.

Leave a Reply

Your email address will not be published. Required fields are marked *