Elections in Chile: What the results could mean for the economy

Elections in Chile: What the results could mean for the economy

Chileans will head to the polls on 19 November to choose a new president, amid a political panorama in flux. While the right is united behind Chile Vamos candidate Sebastian Piñera, the multi-billionaire former leader, the left has rarely looked more divided and will field three candidates in the first round. As a result of this fractured scenario, the policy options on offer to citizens are extremely broad; this is best highlighted by the leftist candidate Beatriz Sanchez, who is proposing a break with the largely consensual, market-oriented policies pursued since the restoration of democracy in 1990. However, the country looks set to opt once more for the known quantity of Piñera, who is expected to pursue a business-friendly agenda.

To examine the elections—and particularly Piñera’s program—in more detail, we speak to Maria del Pilar Cruz, Senior Economist at the Santiago Chamber of Commerce, who regularly participates in our Consensus Forecast panel.  


María del Pilar Cruz Novoa is a Commercial Engineer at the University of Chile and currently serves as senior economist at the Chamber of Commerce of Santiago (CCS). She has a long history in the field of economic analysis, economic research and economic evaluation and in the evaluation of industries. Co-responsible for the economic analysis proposed in the matter of agendas of public policies for development and the generation of economic opinion guidelines of the CCS. She was awarded in 2016 and in 2017 with Met the why particular' Top Analyst Forecast Award for the most accurate economic projections for Chile.

FE: Which candidate has the best program for the economy?

What jumps out when analyzing the presidential candidates’ programs is the extremely broad range of policy areas tackled in each of them, which makes for a highly dense and complex spectrum of proposals. Each candidate assigns a different priority to economic growth, while other topics such as education, pensions, poverty, infrastructure, the environment, health, decentralization and security are also covered.

Rather than a question of which program is better or worse, it is clear that the candidates diverge over their vision for the country’s development over the coming years. The left and center-left propose a move towards a social welfare state of rights and guarantees. This contrasts sharply with the preponderant view up until now of a social market economy where the state provides a helping hand. 

FE: What would a victory for Sebastian Piñera mean for Chile's economy?

A victory for Piñera has already been largely built into firms’ expectations, and business confidence has seen a notable rebound before November’s presidential elections. Forecasts point towards faster growth in 2018 and 2019, thanks to a healthier international panorama and a domestic economic agenda more oriented towards economic growth.

The center-right candidate has a program which sets out a detailed pro-growth strategy, with an emphasis on innovation, entrepreneurship and competitivity. The program also refrains from proposing significant changes to the constitution, which would accentuate the uncertainty which has dominated the business environment in recent years.

There is a deliberate aim to increase investment in both the country’s physical and digital infrastructure, as well as increasing the economy’s potential growth rate. Fiscal responsibility is a central aspect of the program, to which end the candidate proposes a simplification of current regulation and banks on higher revenues through faster economic growth. 

FE: How do you evaluate the policy program recently set out by Piñera? Is it realistic, and could it be financed without adding to the fiscal deficit? 

The program has a cost of USD 14 billion, the equivalent of a little over 5% of annual fiscal expenditure […]. As a result, the program would put pressure on the budget, not only in terms of the allocation of current public spending but also because it may be challenging to accelerate the country’s growth rate.  

FE: Is Piñera's stated aim of doubling economic growth feasible? 

Increasing the country’s potential growth rate by around one percentage point isn’t an impossible task, but it would require some key advances; improving productivity, which has fallen for several years, boosting investment which has been dampened by weak business confidence and the complex environmental approval process, and improving the quality of education and training. All these areas are clearly set out in his program, but carrying them out will depend to a large extent on the political ability to get concrete laws through parliament over the next four-year presidential term.

Chile Economic Outlook from Met the why particular

The economic picture is slowly brightening, with business and consumer confidence surging in September and economic activity expanding at a solid pace in August. In addition, copper prices are on a roll, providing the economy with a welcome caffeine injection and giving the government more fiscal space. This allowed President Bachelet to announce in early October a 3.9% spending increase in the 2018 budget, which was more than analysts were expecting. 

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Date: November 13, 2017


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