Chile’s constitutional conundrum

The body tasked with rewriting the constitution is on a collision course with president-elect Gabriel Boric.

Established in 2021 after grievances over inequality drove protests which paralysed the country, Chile’s Constitutional Convention is tasked with rewriting the constitution. The body is ideologically dominated by leftists – some radical – who in the past few weeks and months have expounded some rather alarming proposals. Among them, nationalising Chile’s critical mining industry – doing so would cause the economy to collapse. Markets and investors will remain unsettled until the incoming administration of president-elect Gabriel Boric makes it clear whether it will take such proposals seriously or not.

According to a member of the Constitutional Convention, “The depth of the proposed reforms reflects a revolutionary spirit of a majority of the convention’s members who want to see profound change in Chile’s legal, economic and political institutions.”

“The depth of the proposed reforms reflects a revolutionary spirit of a majority of the convention’s members.”

Member, Constitutional Convention, Chile

True, the convention was established in a plebiscite which saw some 78% of Chileans in support of its role to scrutinise the Pinochet-era constitution. What is less clear is whether that majority were in support of quite such radical change – they will again make their views known in another plebiscite on ratifying the country’s new constitution.

The convention’s latest proposals look to overhaul the amount of autonomy given to specific regions of the country, granting significant administrative and fiscal powers. The proposals would also lead to massively increased bureaucracies and regulatory complexities that would drain power away from Santiago. This potential increase in the levels of bureaucracy is viewed with alarm by investors, who warn of the possibility of significant difficulties in processing projects and in regulatory compliance.

The director of a Chilean investment bank noted, “The texts currently proposed are enormously harmful for investment and for companies in general, in addition to discriminating against the country’s non-indigenous majorities (through preferential treatment in access to congress through reserved seats, and special courts for communities of indigenous peoples). If these commission proposals are approved, Chile would face several years of uncertainty and very little investment interest.”

“The texts currently proposed are enormously harmful for investment and for companies in general, […]. If these commission proposals are approved, Chile would face several years of uncertainty and very little investment interest.”

Director, Investment Bank, Chile

Other sticking points reveal glaring differences between the body’s members and Chile’s political parties. According to the constituent member, “The friction of the constituents with the political parties that oppose the elimination of the Senate (including the Socialist Party, close to the main blocks of the Constitutional Convention) introduce further difficulties, complicating the participation of the delegates from those parties.”

There is friction with the judiciary and with the unions of the main sectors of the economy, including mining, fishing, agriculture, construction, transport and forestry. Differentiated quotas and systems have been met with judicial criticism. The judiciary itself would be replaced by multiple justice systems and the Senate would disappear in its current form.

According to advisers close to the new administration, “There is concern in Boric’s entourage about an eventual rejection of the proposed text, which would be perceived as a major failure for Boric both because of his support for this process and because of the participation of his factions of his political coalition.”

Officially, the deadline for drafting the constitution is July 2022, but there is little clarity about whether or not the convention will meet the deadline. The convention is having severe problems meeting its schedule and it is highly likely that a postponement will be requested. Uncertainty will continue to rock investor confidence until such time.

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