Markets reacted enthusiastically to the victory of ultra-conservative José Antonio Kast in the first round of the Chilean presidential election. On Monday, the Santiago Stock Exchange rose nearly 10%, the biggest jump in 13 years, and recovered everything it lost in 2020. The peso also appreciated, by 3.7%, and the country risk, which is the The differential paid by Chilean debt compared to that of the United States dropped to less than 90 points. Chile has thus regained its place as the least risky economy in the region, according to rating agencies.
The stock market fever has highlighted investor support for candidate Kast’s pro-market agenda, centered on a significant cut in taxes and, above all, on blocking any change in the pension system, currently in the hands of the private sector. It was also a demonstration of the fear they have of leftist Gabriel Boric, who arrives with almost 2 percentage points behind on December 19, when the name of the new president will be defined in a second round of elections.
The Chilean economy is one of the most stable in the region. This year it will grow 11%, according to official estimates, and will be one of the fastest recovering from the ravages of the pandemic. José Antonio Kast told his voters that he will keep the model intact, based on a minimal state that leaves fundamental areas such as education, health and welfare in the hands of the private sector. Boric, on the other hand, seeks an increase in taxes that will allow for an increase in social spending and a greater presence of the State in the economy. He even said that he was going to replace the private pension system with another, state-owned, with a solidarity repartition. Investors believe such a change of course would be catastrophic for the Chilean economy.
“The stock exchange had a correction downwards of 1.8% this Tuesday, but the rise of almost 10% on Monday was enough for Chilean companies to recover 16 billion dollars of their value”, explains Francisco Castañeda, Director of the School of Business, Universidad Mayor de Chile. “There could be many crises, but when voting, Chileans opted for stability,” he says. The key is in the composition of Congress. For the first time since the return of democracy in 1990, the forces of the right and the left will be tied for the number of senators. Parity will be a wall for any structural change, for example, in the tax field, whoever is the winner. “Kast promised to reduce taxes and Boric, to raise them. But it’s all science fiction politics, because any change has to go through Parliament. There will be no change if there is no prior consensus and this, from the point of view of the stability of the system, is very healthy”, says Castañeda.
“The market had punished Chilean assets too much [durante a campanha eleitoral] and now there has been a kind of overreaction,” says Guillermo Larraín, professor of economics and business at the University of Chile, in explaining Monday’s numbers. Larraín considers that parity in Parliament is not necessarily good news and that “markets work a lot based on imperfect information and with a lot of prejudice”. “There is a candidate with a pro-market discourse [Kast], but that ignores everything behind the social upheaval, which is the source of political tension”, observes Larraín. “The same goes for Gabriel Boric, who has a less favorable view of the market, but a more realistic approach to the social issue. At some point, these two views will have to confront each other.”
This clash has a definitive meeting on December 19, in the second round. Meanwhile, campaign teams were looking to make deals on Tuesday to win the votes of the five candidates defeated in the first round. Necessity will eventually moderate extreme positions. All efforts are to attract the center, which on Sunday had no option.
sign up on here to receive EL PAÍS Brasil’s daily newsletter: reports, analyses, exclusive interviews and the main information of the day in your e-mail, from Monday to Friday. sign up also to receive our weekly newsletter on Saturdays, with highlights of coverage for the week.