The market reacted negatively to Gabriel Boric’s victory in Chile. This Monday (20), the day after the leftist’s election to the presidency, the dollar had its biggest jump since 2008 in the country.
Until mid-morning, the price, at 878 Chilean pesos (BRL 5.77), was the highest since March 2020, when the Covid pandemic started to impact the Chilean economy. There was also the expectation that the US currency could close at 900 pesos (BRL 5.91) by the end of the day.
The local stock market plunged almost 8% when markets opened, but it had been improving throughout the morning. The IPSA index, of the main shares of the Santiago Stock Exchange, thus registered the biggest daily drop since the election day of the Constituent Assembly legislators, in May of this year.
The most affected actions are copper and those linked to the pension and health system, a likely reaction to the fact that Boric has, in his government platform, the proposal for a pension reform that would nationalize the management of pension funds, currently managed by private means.
In his speech on Sunday night (19), the first as president-elect, Boric re-listed the proposal as the main reform to be suggested once he takes office, on March 11, 2022.
Among the main problems he will have to deal with are, in addition to the responsibility of initiating the pension reform, the country’s economic crisis, the continuity of the policy to fight the coronavirus pandemic, the forwarding of the Constituent Assembly process and the attempt to establish a harmonious relationship with Congress, in which there is no clear majority.
Faced with the worst recession in decades, the economy appears as the most latent issue. GDP shrank by 6 percentage points in 2020, due to the impact of Covid, which also caused the loss of 1 million jobs, and the level of poverty, in turn, went from 8.1% in 2019 to 12.2% in 2021.
Although a 5.5% GDP growth is expected in 2021, the recovery is still fragile and slow to meet the increase in social needs and the expenditure made by the State to minimize the impact of the pandemic. Inflation may exceed 6% this year, double the target set by the Central Bank.
Also in the economic area, the government will have to deal with the effects of the withdrawal of US$ 50 billion from private pension funds, released by Congress in the pandemic, contrary to President Piñera.
The success of negotiations to approve the reforms and define the Constituent Assembly’s next steps depends on the government’s relationship with Congress. The plebiscite to approve or reject the new Charter is expected to take place in October, and the new Constitution may have among its articles the change from the presidential system to the parliamentary system, or even the redefinition of the president’s term of office.
In this case, the elected person might have to call new elections or leave office earlier than expected.
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