Index trend
Previous Quarterly Editions
Expropriation risk: 51 51 51 51 ► Political violence risk:48 48 48 48 ►Terrorism risk:27 25 25 22 ▼Exchange transfer and trade sanction risk: 35 35 35 35 ►Sovereign default risk:37 37 37 37 ►
Overall Risk Temperature: 43 (Medium low) TREND ►
Special topic: Political polarization
Newspaper headlines in Chile often give the impression of a highly polarized country. However, while this is true of the political elite, it is less true of public opinion. Indeed, according to polls, citizens are quite critical of disputes among politicians, preferring those who are willing to compromise in order to reach agreements.
The long-standing divide in Chilean politics has been the ‘Yes-No’ cleavage, referring to the 1988 referendum on the continuity of the Pinochet dictatorship (1973–1990). This initially almost unbridgeable divide persisted long after the restoration of democracy, in the form of a right-left cleavage. However, this now appears to be attenuating. For example, the National Study of Polarizations 2024 — a survey by 3xi, a social organization, and the Criteria opinion research company — found that, compared with the previous year, differences of opinion had narrowed on 13 of the 18 opinions tested.
This is despite the emergence in recent years of a far-right political party. Rather than reflecting increased polarization, its appearance is part of a sharp rise in the number of political parties following the introduction of a more proportional electoral system in 2015, with the resulting political fragmentation.
Public wariness of more extreme positions was evident in the successive rejection in national plebiscites in September 2022 and December 2023 of two proposed new constitutions, reflecting extreme-left and far-right visions of society, respectively. In line with this, President Gabriel Boric, elected as head of the left-wing Broad Front coalition, has consistently moved to more centrist positions, incorporating center-left politicians into his government.
The National Study of Polarizations also found a decline in affective polarization in that, on both sides of the left-right cleavage, there was a decline in distortion of the positions of those on the other side. Although 57% indicated they avoided talking about politics with relatives, friends and colleagues, only 23% reported having cut ties for political reasons and only 26% indicated distrust of people who had voted for a candidate different from the one they supported.
There is, however, little sign of any decline in elite polarization, and in the run-up to presidential and parliamentary elections in November, it is likely to intensify or at least become more visible. At the same time, rejection of a ‘squabbling’ elite contributes to very low trust in institutions such as Congress. Along with a new cleavage in the form of rejection of an immigrant population, which now accounts for around 10% of the total population, elite polarization poses a threat to social cohesion, largely because it undermines trust in democracy.
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The risk of expropriation in the form of uncompensated nationalization is negligible. Moreover, in line with the importance of foreign direct investment in driving its small economy’s growth, Chile has long maintained a policy of equal treatment of overseas and local investors.
However, the three foreign investors in Chile’s private pension fund administration (AFP) industry — MetLife, Prudential Financial and Principal Financial Group — have argued that one of the terms of a pension reform approved by Congress in January constitutes expropriation. In a bid to increase competition in the industry, the law mandates the auction of a randomly selected 10% of the system’s affiliates every two years for transfer to the administrator offering the lowest commission. The auctioned affiliates will be entitled to reject their auction-determined transfer and as at present will remain free to switch administrators at will, at any time and without charge. However, in a letter to the Chilean government, the American Council of Life Insurers argued that by giving newcomers an unfair advantage, the auctions would represent expropriation and a violation of Chile’s commitments under the Chile-U.S. Free Trade Agreement. Once the reform comes into effect, the three companies may opt for legal action and potentially appeal to the Washington-based International Centre for Settlement of Investment Disputes.
After a number of adverse Supreme Court rulings on their charges to customers, Chile’s private health insurers (ISAPREs) received a financial life raft in the form of a law giving them up to 13 years to repay affiliates some $1.5 billion in charges judged excessive by the Supreme Court. However, the industry is wary of a bill currently before Congress that would imply structural changes in the industry. In this context, U.S.-based UnitedHealth Group, the owner of one of the larger ISAPREs, is seeking a buyer for its operations in Chile.
Chile’s penetration by regional organized crime gangs has positioned public order and security as a key concern. In response, the government has recently launched a new Ministry of Public Security, separate from the Interior Ministry by which public security matters were previously managed. Public security will also feature prominently in campaigns for the November elections.
Together with citizens’ concerns about their personal economic situation in the context of a sluggish economy and labor market, this has discouraged political protest. Moreover, the damage caused by a social uprising in 2019, which involved attacks on underground railway stations and other infrastructure, has led to widespread condemnation of violence as a political tool.
Demonstrations are likely to increase in the run-up to the November elections, however, and would probably increase further if the next government is from the right. This reflects the persistence of the socioeconomic inequalities that were a key factor in the 2019 uprising.
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A risk of terrorism exists in the parts of southern Chile that were the traditional homeland of the indigenous Mapuche people, where it is related to claims for the restitution of land. Confined mainly to rural areas, this risk involves principally arson attacks by armed radical groups on the premises and vehicles of non-Mapuche landowners and forestry companies.
Incidents of this type have been declining, however. According to the government, 517 incidents were reported in 2024, a drop of 46.5% on 2023 and the lowest figure since 2017. This partly reflects measures that include a state of emergency, in force since May 2022, which permits the use of the armed forces to support police work. A government advisory commission is scheduled to report at the end of April with recommendations on longer-term measures for the area.
There is no current risk of capital or exchange controls. However, exchange-rate risk is high due to the peso’s volatility against the U.S. dollar in response to international as well as domestic factors.
In recent decades, Chile, a staunch supporter of free trade, has benefitted greatly from globalization through the growth of its export markets. Consequently, the trade measures taken or threatened by the Trump administration have potentially very adverse effects for the country’s small open economy.
The U.S. administration has mooted a possible tariff on imports of copper. Copper is Chile’s principal export, and the U.S. market accounts for around one-third of its total sales. However, given U.S. dependence on imported copper, local experts are reasonably sanguine about the direct impact on Chile of a copper tariff.
However, the indirect impact of weaker global trade due to a trade war, particularly a downturn in demand in China — by far Chile’s largest export market — would be highly significant. This would negatively affect Chile’s already moderate growth prospects (1.75% to 2.75% in 2025, according to the Central Bank) and government revenues at a time of already tight fiscal accounts and pending social demands.
TREND ►Sovereign default risk is very low. The three main credit rating agencies place Chile in the A category: Standard and Poor’s, A with a stable outlook; Moody’s, A2 with a stable outlook; and Fitch Ratings, A– with a stable outlook. Gross central government debt reached 42.3% of GDP at the end of 2024 and according to the Finance Ministry will approximately maintain its level this year, below the 45% considered a ‘prudent’ ceiling.