Chile will hold a referendum on 4 September to replace the 1980 Constitution passed by the military dictatorship of General Augusto Pinochet with a new text which emerged from the 2019 mass protests and the 2021 Chilean Constitutional Convention Election.
Two weeks ahead of the referendum, polls show that 46% of the voters intend to reject the text with 19% of the electorate undecided. Couple this with the fact that voting is mandatory it has been difficult for the pollsters to predict the outcome.
Further divisions also exist within the voting blocks. For example, voters opposing the new text are divided between those who favour making minor changes to the current constitutional text and those seeking a more drastic reform.
The progressive nature of the proposed new text has prompted Chile’s right-wing opposition leader, José Antonio Kast, to repudiate the proposal. But other issues, such as the intent to form a pluri-nationalist state with indigenous communities having their own public security and justice, have caused cross-party concerns. Other divisive issues include the elimination of the Senate, reducing the scrutiny of lawmakers’ proposals, greater policy powers for the central bank and the authorisation of expropriations with compensation.
An executive of a Chilean investment bank summarised the views of the business community, “There is alarm among executives and all but the most extreme left politicians about the legal and regulatory uncertainty around the whole process. Just one issue of particular concern to our clients is the proposal to grant both administrative and fiscal autonomy to the regions and other territories, which would create a multitude of independent entities that would make it difficult to run the country.”
“There is alarm among executives and all but the most extreme left politicians about the legal and regulatory uncertainty around the whole process.”
Executive, investment bank, Chile
“The text currently proposed is enormously harmful for investment and for companies in general,” explained a portfolio manager at a institutional investment firm in Chile, “it discriminates against the country’s non-indigenous majorities (through preferential treatment in access to congress through reserved seats, and systems special courts for communities of indigenous peoples). It is paradoxical that the new constitution is adopting positions that could destroy the economic foundations of the country, given that the majority of the population expect the new constitution to improve pensions, health and education, how will these be financed?”
Consequently, as a supporter of the new constitution, President Boric faces his first major test in office. If approved, he will need to make sure that political opponents feel included in the implementation of the new legal framework. If rejected, he has said that talks and negotiations will continue until an agreed text can be found.
A constitutional lawyer saw problems ahead, “The new constitution will have severe legitimacy problems unless it is approved by a wide margin in the ratifying plebiscite. Furthermore, the main definitions of the convention are extremely vague and imprecise, making it difficult for even experts to interpret them clearly. Therefore, the implementation of the constitutional text will take several years of clarifications and modifications and corrections.”
“The new constitution will have severe legitimacy problems unless it is approved by a wide margin in the ratifying plebiscite.”
Constitutional lawyer, Chile
In the meantime, the uncertainty is negatively affecting the country’s economy at a time of rising global inflation and other macroeconomic headwinds. JP Morgan said that a rejection of the new constitution would generate less uncertainty at an institutional level which could result in the local IPSA stock market rising by as much as 25%.