A change of government and a reviving commodities market could be good news for the Chilean economy.

Foreign direct investment in Chile is expected to pick up markedly during the next few years, as a more markets-friendly president, Sebastián Piñera, assumes office and the global price of copper – a mainstay of the country’s economy – rebounds.

Mr Piñera, the billionaire, right-wing candidate who governed the South American nation from 2010 to 2014, defeated leftist candidate Alejandro Guillier during a second round of voting on 17 December. He won with 54.6% of the votes against Mr Guillier’s 45.4%. Mr Piñera will take office on 11 March for his second four-year term.

Michelle Bachelet, the outgoing socialist president, backed Mr Guillier, but the flat Chilean economy had undermined her popularity and did not help his chances of victory. Annual economic growth only averaged 1.77% during her four years in power, its slowest pace of growth since the 1980s.

“Mr Piñera won because of the lacklustre economic performance,” says Peter Hakim, president emeritus at the Inter-American Dialogue, a Washington-based think tank. “He is assuming office at an auspicious time, as the sun starts to shine again on the global economy and copper prices are rebounding.”

Copper-related products accounts for almost 50% of the country’s total exports. Codelco, the state-owned copper mining company, is the world’s biggest copper producer and produced 1.66m tonnes last year, 11% of the world total.

Copper prices rebounded by 19% last year and in December reached their highest level since August 2014. 

“We expect economic growth in Chile now to accelerate,” said Alberto Ramos, head of Latin America economic research at Goldman Sachs. “The uptick in commodity prices is very good news for the economy. In our view, this next Piñera administration is not likely to be as radical or as reforming as his first one, mostly because his supporters do not have a majority in Congress. He will be able to stop the harm that Ms Bachelet’s policies were doing but this is unlikely to be a transformational administration.”

In November, elections took place for the lower house of Congress and for half the seats in the Senate. A majority of members were elected that represent centre-left parties, highlighting just how fragmented Chilean society is. Ms Bachelet raised the corporate tax rate recently and it is unlikely that the new Congress would back a reversal, despite Mr Piñera’s stated desire to do so.

In 2016, FDI inflows into Chile amounted to $11.2bn, down from a peak of $27bn in 2012.

This article is sourced from fDi Magazine
fDi Magazine

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