Weekly Report - 14 July 2022 (WR-22-28)

CHILE: Boric presents big reforms

The far-right Partido Republicano (PR), whose presidential candidate José Antonio Kast was defeated by Boric in the second round of elections last December, presented an impeachment motion against Siches whom it accused of “seriously compromising the security of the nation” and of responding in a “late, insufficient, and limited” manner to the violence in southern Chile. The lower chamber of congress rejected the motion on 12 July by 84-57 but the pressure will remain on Siches. On the same day that impeachment was voted down, there was news of a new arson attack in La Unión, in the southern region of Los Ríos, in which eight trucks were destroyed.

If security is second on the list of public concerns, according to recent opinion polls, the cost-of-living crisis is top. Inflation increased by 0.9% in June, according to figures released by the national statistics institute (INE), bringing inflation for the first six months of the year to 7.1% and 12-month inflation to 12.5%. The finance minister, Mario Marcel, said that inflation remained “high” (the last time annualised inflation was this high was in 1994) but that this was the first time in many months that it was slightly lower than forecast. Marcel promised to focalise assistance for the most vulnerable sectors of society.

Inflation has been exacerbated by the peso’s sharp fall against the US dollar, as Chile imports 70% of its food and practically all of its fuel requirements, reaching a record high of nearly Ch$1,000/US$1 last week after the biggest weekly slump against the dollar for 13 years. This can be attributed in part to a decline in copper prices due to Europe and the US drifting towards recession and a slowdown in China’s economy due to its zero-Covid policy. But Boric, who described it as “tremendously worrying” on 6 July, also pointed to “uncertainty” due to political divisions surrounding constitutional reform.

Boric called on politicians from across the spectrum to give “signs of certainty that we are going to reach an agreement”. Two days later former president Eduardo Frei Ruiz-Tagle (1994-2000) did just the opposite, announcing that he would vote against the draft constitution in September’s referendum because various proposals within it would “compromise peace, development, and prosperity”, while arguing that the declaration of Chile as a plurinational state posed “a threat to state unity and equal rights”. His comments came directly after the party leadership council of his own Democracia Cristiana (DC) voted by more than 60% to support the new constitution.

It is not just political uncertainty but also economic uncertainty that has contributed to the peso’s slide. It was noteworthy that Juan Sutil, the president of the Confederación de la Producción y del Comercio (CPC), the country’s leading business association, responded to the presentation of the government’s proposed tax reform on 1 July by saying that irrespective of the content of the bill at least “uncertainty” would hopefully soon decrease now that the government had revealed its plan. The president of the Sociedad Nacional de Minería (Sonami), Diego Hernández, was less charitable, saying it would be “complicated” to apply such an ambitious plan given “the scenario of high inflation and signs of economic recession”.

The tax reform proposal aims to increase the tax take over the next four years by 4.1% of GDP, or some US$12bn; lower corporation tax from 27% to 25% on the condition that companies plough the other 2% into “productive” investment; increase income tax on the top 3% o

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