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Chilean Political Briefing

Chilean Political Briefing

Chilean Political Briefing

Former President Michelle Bachelet was the clear winner of the ?Nueva Mayoria? coalition (center left) presidential primary elections on Sunday, June 30th. With Pablo Longueira ? the candidate from current President Pinera?s ?Alianza Por Chile? coalition ? tainted by close ties to former President, Augusto Pinochet and the absence of a credible third candidate, Bachelet is the strong favorite to take back the Presidency in November this year.

But what is this likely to mean for multinational companies operating in Chile?

1. Chile wants change ? In what were the first elections since voting became voluntary and registration automatic, nearly twice as many voters as forecast turned out for the primary elections. Former President Michelle Bachelet received 73 per cent of the vote within her coalition (representing 52% of the total votes in the primaries) and her rivals conceded defeat by Sunday evening. The ascendancy of Bachelet and her center-left ?Nueva Mayoria? coalition comes against a backdrop of social unrest and dissatisfaction with public services: a clear indication that Chile wants a more socially-oriented public policy: investment in health and investment in education is at the top of the agenda.

2. Expect to see more protests ? Students plan to continue with recent protests ahead of the November presidential and congressional elections, and will likely take to the streets again in September when Congress discusses the government's 2014 budget proposal. Protests indicate not only strength of feeling for educational reform, but also a broader dissatisfaction with politics and will impact both the acting government as well as the opposition. In addition to education, there is a feeling the population is not getting its fair share from the country?s resource wealth and that the government is not addressing underlying social and economic issues. While last week?s protests are likely to impact Pinera┬┤s government?s approval (ranked 40% in early June), it will not be to nearly the same degree as we are currently seeing in Brazil.

3. Tax hike looks certain for 2014 - As social demands continue to rise and more people take the streets, the next president will have to take action. Bachelet is considering a tax reform based on increasing corporate tax from 20% to 25% and a reduction in tax breaks available through capital investment.

4. Institutional reform looms ? In Bachelet?s first announcements during the debates she indicated that if elected she would have what?s called a ?constitutional assembly? to push for a new constitution to replace the one created under Pinochet in 1980. However, her latest comments changed that position and have reinforced the respect for government institutions and the need of going through Congress to modify the Constitution instead of through the constitutional assembly. Therefore, this will take place in an environment of strong respect for current institutions.

5. Further pressure on already-stretched energy resources can be expected into 2014 and beyond - Bachelet said last week during a public debate that she is firmly against the planned 2,750-megawatt HidroAysen hydropower project, despite significant shortages in national energy production as a result of under-investment, unclear regulations, the 2010 earthquake, and droughts. This indicates the growing importance of environmental issues and the need for foreign companies to comply with environmental regulations.

6. Chile will remain an attractive, business-friendly market ? The Chilean economy is showing signs of a mild deceleration but is stable and growing at between 4%- 5% this year. Bachelet is expected to keep the majority of the market-friendly economic policies of Chile?s recent past in place, however, she seems to be returning with a program that is more deeply rooted in the left.

Sunday?s results marked the beginning of a battle to win the votes of those ? mostly center-leaning - Chileans who do not identify themselves with any political party. The next four months are likely to polarize Chileans into one of two camps: Bachelet?s center-left or Longueira?s center-right. We watch with interest?

Facts about Chile:

1. Economic stability and fiscal discipline: GDP growth for this year (4%-5-%), law inflation rate (2,6% - 3% next year), low unemployment (6.4%)

2. Ease to start new businesses: According to research done by the World Bank and the IFC (2012), Chile is the most accessible and efficient country in the region to start a new business or to invest.

3. Political stability: Continued approval of the Pinera's government (40% in June).

4. Competitiveness: Reliable and competitive partner. One of the most open economies in the Region. Chile has signed 21 FTA?s with 58 countries. These include the USA; Canada, Mexico, China, EU, Australia, Japan, India, Korea. Currently in negotiations for the TPP and the Pacific Alliance.

5. First South American country to enter the Organization for Economic Cooperation Development (OECD) formed by leading countries.

6. Per capita income in power parity terms near US$19,474 (IMF estimate for 2013).

7. Highly connected, developed telecommunication networks. Network readiness s Index 2012, published by the World Economic Forum (WEF), Chile ranked ahead of all other Latin American countries.

8. Low levels of corruption. Chile has the lowest levels of corruption in South America, along with Southern Cone neighbor Uruguay, according to the last Corruption Perceptions Index 2012 compiled in Dec 2012 by Transparency International. (Position 20, Brazil 69, Peru 83, Colombia 94, Argentina 102).

For further information please contact:

Josh Bayly

Maria Pia Gazzella

Fiona McCollum

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