In what’s being widely described as a shock loss after this weekend’s historic election to determine who will draft the country’s new constitution, traditional parties including President Sebastián Piñera’s ruling center-right coalition Chile Vamos got clobbered, seeing their parliamentary seats and influence greatly diminish in favor of both independent, hard-left and radical candidates Sunday night.
With over 90% of the votes counted by Monday afternoon, Pinera’s coalition won a mere one-fifth of the constitutional assembly’s 155 seats (at 37 seats), while traditional center-left parties picked up only 25 seats, leaving the lion’s share to “radical blocs” that include communists and independent leftists that are bent on implementing sweeping changes to Chile’s constitution which dates back to Gen. Pinochet’s military rule. Radical re-drafting of the constitution was a central demand of the 2019 protests triggered by high living costs and rampant inequality (which famously, it should be remembered, was initially sparked by a $0.04 metro fare price hike given long boiling anger among the working class).
BBC tallies that now with more than 98% of the votes counted, “independent candidates had secured 48 seats, the left 28, the centre-left 25, and the right-wing coalition 37.” And an additional 17 seats will go to representatives of indigenous groups, the latter which were a driving force in the protests and unrest of 2019.
Given the ruling government failed utterly in its battle to secure the critical one-third of seats needed to block major changes, a radical new constitution is all but assured, with the new constitution expected to head to public vote by the first half of next year (after delegates will spend at least nine months drafting it).
Chile’s markets were hammered on fears of the constitutional overhaul and seemingly lighting-fast slide Leftward, with stocks immediately plummeting and the peso weakening as much as 3.6%, hitting a 1-1/2-month low before gaining a little ground back.
Upon the glaring popular rejection of established political parties Reuters recorded that “The IPSA stock index tumbled nearly 10% before recouping some losses to trade down around 8%, still its biggest daily drop since the COVID-19 pandemic ripped through global financial markets in March 2020.”
And more: “Dollar-denominated sovereign bonds suffered, with some longer-dated issues dropping more than 1 cent in the dollar. The premium demanded by investors to hold Chilean debt over U.S. Treasuries widened,” according to Reuters, and 5-year credit default swaps “jumped by 7 basis points to 61 bps, the highest since October, Refinitiv data showed.”
In a massive, historic victory for the Chilean left, a 30-year-old communist militant from the Communist Party of Chile and former student activist leader, Irací Hassler, just won the mayoral election and will be the next mayor of the capital city Santiago https://t.co/v3HGWJ6emH
— Ben Norton (@BenjaminNorton) May 17, 2021
Market jitters are sure to stretch further for the world’s largest copper producer as well as major lithium-mining country on the extreme uncertainty regarding the likely drastic political changes on the horizon.
Chile Election Impact – High
Between 40-46% of our planet’s copper mining production is facing new political risks.
— Lawrence McDonald (@Convertbond) May 17, 2021
As an example of how far away we could be from Chile’s current “free market friendly” constitution, one of the big winners from the vote – the far-left Broad Front – had this to say… “We’re going to start from scratch and build a new Chile” toward a “state that guarantees universal social rights,” leading member of the far-left coalition, Gabriel Boric, said.
And Goldman Sachs noted this means the country is headed for a “larger, more interventionist state and the broadening of the social safety net.”