What’s at Stake as Chile Writes a New Constitution

By Valentina Fuentes and Matthew Malinowski | Bloomberg,

This weekend, Chileans will elect members of the body that will rewrite the country’s constitution, a key demand stemming from a period of civil unrest in late 2019. Nearly 80% of the population voted in favor of a new charter in a referendum last October, sealing the fate of the current document that was drawn up during the 1973-1990 military dictatorship. The upcoming vote will determine which political forces will map out the rules that will seek to assuage social tensions and will define the country’s policy framework for at least a generation.

1. Why are Chileans writing a new constitution?

Many say the current constitution, though amended several times since Chile returned to democracy, is illegitimate because of its origins during the reign of General Augusto Pinochet, a violent dictator whose rule featured arbitrary arrests and political executions. Critics argue that elements of it contribute to inequality and a weak social security net that have fed unrest, while also giving the private sector too dominant a role in providing public services. On the other hand, many are seeking to retain the nation’s pro-business rules, arguing they have been key to Chile’s economic growth and stability.

2. What’s ruling the current unrest?

As recently as this month, lawmakers have clashed over bills seeking tax increases and pension withdrawals, with supporters and detractors sparring over whether the proposals violate the current constitution. Those controversies follow a period of mass protests that began Oct. 18, 2019, triggered by an increase in the subway fare. Demonstrators quickly expanded their complaints to include low pensions and deficiencies in the health care and education systems, among other demands. The unrest, which waned at the start of 2020 near the onset of the pandemic, forced shops to close, disrupted key transportation links and stalled investment decisions.

3. What are voters considering?

Citizens will choose candidates spread across multiple lists in each district through what is known as the D’Hondt method. Electoral officials will then tally the number of votes each list receives and then divide the seats proportionally. The Assembly will have gender parity and 17 of its 155 spots will be reserved for indigenous communities. The body will start to work in June and have as much as a year to draft the new charter. Originally scheduled for April, the election was delayed because of a surge in the coronavirus.

4. What’s worth watching this weekend?

Despite the low popularity of center-right President Sebastian Pinera, the ruling coalition has the big advantage of having presented a unified list for the vote. By contrast, the left-wing forces have split their candidacies in several groups, leaving the opposition divided. The government-aligned contenders are likely to gain a third or more of the seats in the Assembly, according to Diego Pardow, executive president of think tank Espacio Publico. Given that by design each article of the new constitution requires the approval of a two-thirds majority, the ruling coalition will effectively have veto power over each and every clause of the charter if they get to that 33% threshold, he said. That’s the key factor to follow when the results come out on Sunday night.

5. How has the debate affected financial markets?

Many investors have said the looming election has kept the peso weaker than it should be given record-breaking gains in copper, Chile’s biggest export. Analysts at Credicorp Ltd. say the absence of political uncertainty would allow the currency to strengthen closer to 640-650 pesos per dollar instead of the current level of around 705 pesos. In November 2019, when Pinera first said he was willing to change the constitution, the currency went into free-fall, depreciating by more than 13% and forcing the central bank to intervene. Political uncertainty has also contributed to local fixed income yields spikes in recent months.

6. What do Chileans want in a new constitution?

A survey taken in late 2020 showed that 69% of Chileans want a new constitution to guarantee social rights in pensions, health care and education, with 23% seeking better salaries and quality of life and 18% looking to change the country’s economic model. More recently, a separate poll identified crime, unemployment and poor health care as the three main problems facing the population in general.

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