Index trend
Previous Quarterly Editions
Expropriation risk: 51 51 51 51 ► Political violence risk:48 48 48 48 ►Terrorism risk:28 28 27 25 ►Exchange transfer and trade sanction risk: 44 35 35 35 ►Sovereign default risk:37 37 37 37 ►
Overall Risk Temperature: 43 (Medium low) TREND ►
Special topic: Relationship with the 'global rules-based order'
Chile was isolated from the international community for 17 years during the Pinochet dictatorship (1973 – 1990). As a result, successive governments placed great emphasis on international reintegration. This policy was supported by both center-left governments and the center-right opposition and reflects a shared perception of the political and economic advantages of a global rules-based order.
Chile has been a member of the United Nations (U.N.) since its creation and has served several terms as a non-permanent member of the Security Council (most recently in 2014 – 2015). Its ties with the U.N. have also tightened due to the role of former President Michelle Bachelet as executive director of U.N. Women (2010 – 2013) and commissioner for human rights (2018 – 2022). After the experience of the dictatorship, Chile particularly values the U.N. as a line of defense of human rights and is currently a member of its Human Rights Council (2023 – 2025).
There is also awareness that, for a small country of nearly 20 million people, the rule of international law and dispute settlement mechanisms serve as an important form of protection. Chile has used the International Court of Justice in The Hague to resolve territorial disputes with Bolivia and Peru.
In 2010, Chile became the first South American country to join the Organization for Economic Co-operation and Development. This was intended (and has indeed served) to assist development by locking in the standards required for Chile’s accession, including democratic governance, and by providing access to comparative policy experience and technical advice.
However, over the past 40 years, trade has been the key focus of foreign policy. Santiago has signed free trade agreements and double taxation treaties with over 60 countries worldwide, including all its main markets. In 1994, it also joined the Asia-Pacific Economic Cooperation. This policy, against a background of globalization, has delivered strong growth of exports and foreign direct investment.
An increase in protectionism in other countries would, therefore, pose a major threat to Chile’s economic prospects. It would undermine decades of work in opening new markets. Part of the left has begun to question market openness as a development strategy. This was seen in opposition to Chile’s membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which it has, however, joined. This part of the left perceives trade as a vehicle for U.S. and European imperialism, condemning peripheral countries to the export of raw materials. In line with this, the CPTPP was criticized as at odds with the national autonomy required to implement industrial policy.
TREND ►
A proposed new left-wing constitution, which would have posed expropriation risks, was overwhelmingly rejected in a national referendum in September 2022. A second attempt to write a new, right-wing constitution was also rejected in a referendum in December 2023. Chile, therefore, remains under the constitution written by the Pinochet dictatorship (albeit it has been much reformed since). Public fatigue with the issue suggests that no further attempts will be made to replace or significantly modify this constitution before the next parliamentary and presidential elections in November 2025; however, demand for changes to the constitution or other legislation, potentially posing expropriation risks, may figure in the campaigns of the most left-wing candidates.
Negotiations between the left-wing government and the right-wing opposition in the hung Congress have failed to produce an agreement on reforming the private pension system. The government proposal aims to divide the operations of the current private pension fund administrators (AFPs), separating administrative aspects, such as the collection of contributions and payment of pensions, from the management of the funds’ assets. According to the current bill before the Senate, administrative operations would be transferred to a single pension administrator, selected through a tender. For asset management, new private pension investors (IPs) would be created (which the existing AFPs could opt to establish). The industry fiercely opposes this separation, which it views as tantamount to expropriating part of their business.
The future financial viability of the country’s private health insurers (ISAPREs) is uncertain. This stems from a series of Supreme Court rulings limiting the prices they can charge affiliates. A solution has been impeded by several factors, including opposition from left-wing politicians who oppose the private provision of public services in general and the ISAPREs in particular as creating a two-tier health system. This system gives ISAPRE users better access to care compared with the majority of the population served by the National Health Service. It is doubtful that the ISAPREs’ failure could be classed as expropriation; however, the Supreme Court could be accused of having exceeded its constitutional powers by, in effect, setting public policy.
The public discontent expressed in often violent social protests in late 2019 remains latent. Many of the issues voiced there — for example, socioeconomic inequalities in the quality of education and access to healthcare — have not been effectively addressed. A mid-March survey by Cadem, an opinion research company, found only 18% perceived an improvement in healthcare in the two years since President Gabriel Boric took office. For education and inequality, the figures dropped to 14% and 12%, respectively.
However, this sentiment has not translated into renewed political violence. A marked increase in violent crime related to drug gangs and transnational criminal organizations has sharpened public aversion to disruption and increased the importance they attach to stability and security. Moreover, although support for Boric is only 30%, his supporters include many of the activists who, under a different government, would potentially have spearheaded protests, which can entail a risk of violence.
Protests could increase in the run-up to the next parliamentary and presidential elections in 2025. This could also be the case if, as currently seems likely, the right forms the next government.
The risk of terrorism is confined almost exclusively to the parts of southern Chile that were the traditional homeland of the indigenous Mapuche people: the Araucania Region, the south of the Biobio Region, and to a lesser extent parts of the Los Rios and Los Lagos regions. Armed radical groups, who advocate for demands such as land restitution, predominantly carry out arson attacks on properties owned by non-Mapuche landowners and forestry companies; however, in recent months, a state of emergency permitting the use of the armed forces has significantly reduced such attacks.
TREND ▼
There is no current risk of capital or exchange controls or trade sanctions; however, exchange-rate risk is high due to the peso’s volatility against the U.S. dollar in response to both domestic and international factors.
TREND ►Chile presents a very low sovereign default risk. All the three main credit rating agencies place it in the “A” category: Moody’s, A2 with a stable outlook (September 2022); Standard and Poor’s, A with a stable outlook (October 2022); and Fitch Ratings, A– with a stable outlook (July 2023).
However, although gross central government debt, at 39.8% of GDP in December 2023 (up from 27.9% in 2019), remains low compared with similarly rated countries, there is concern about its upward trend. The government currently estimates it will reach 41.2% of GDP this year and 41.5% in 2025 before stabilizing at 41.2% in 2026 – 2028 (although that will depend on the next government’s policies); however, a report in mid-March by Fitch Ratings warned that subdued growth prospects and high social spending pressures will make it challenging for Chile to meet these medium-term targets. Similarly, the Autonomous Fiscal Council, a government advisory body, has warned of tight fiscal conditions, although anticipating that debt will remain below a “prudent” level of 45% of GDP.
