Brazil & Southern Cone - January 2026

After winning the second round of the Chilean presidential race on 14 December, José Antonio Kast is inheriting an economy that is doing far better than most in Latin America. Inflation is under control, debt levels are manageable, and the country’s risk premium is the lowest of them all. And yet the shine of the region’s investor darling has come off in recent years, and Kast will have to tread carefully to restore it. Economic growth has slowed to around 2% on average from more than twice that a decade ago, social unrest rekindled deep divisions in society, and two failed attempts to rewrite the constitution have fuelled investor uncertainty.

In comes Kast, an ultra-conservative politician and outspoken supporter of former dictator Augusto Pinochet (1973-1990), who is not known for his ability to compromise and pursue consensus politics. In fact, he broke with the country’s traditional right because he considered it too moderate. Chile’s last, far more moderate right-of-centre president, Sebastián Piñera (2010-2014, 2018-2022), was nearly ousted as a result of widespread social protests that rocked the country to its core and left it more divided than ever.

After he takes office on 11 March, Kast will face a similar highwire act. Not only will he be expected to deliver on his pledges to combat illegal immigration and improve public security, but he must also push through plans to downsize the state and deregulate businesses without triggering the kind of backlash that Piñera did.

Kast got a clear majority, but only in the second round and mostly because he was more convincing on hot-button issues such as immigration and crime. But many Chileans that voted for Kast are more progressive on social issues ranging from abortion to welfare spending. In addition, it was the first election with obligatory voting, which mobilised a section of society that usually does not participate in politics and by nature is rather sceptical of politicians. Many of them may have cast a protest vote rather than a vote in support of Kast’s far-right ideology. The point is perhaps fewer Chileans back Kast’s far-right agenda than could be assumed.

In his acceptance speech Kast sounded more conciliatory than during his campaign, calling on Chileans to be respectful and courteous vis-a-vis each other and democratic institutions, and not to use violence in expressing their views. On the other hand, he has sympathised with far-right leaders, such as Argentina’s Javier Milei and Brazil’s former president Jair Bolsonaro (2019-2023), all of whom deepened divisions in their respective countries. Not even 36 hours after winning the election, Kast was posing for a photograph in Buenos Aires next to Milei and his trademark chainsaw symbolising the dramatic spending cuts that are helping fix Argentina’s public finances, but have also triggered street protests, mostly by pensioners, civil servants, and students.

Market rally

Financial markets had rallied for months in anticipation of a Kast victory and the prospect that he would return Chile to more free-market economic policies after four years under the country’s outgoing left-wing incumbent, President Gabriel Boric. 

The peso jumped over 10% in 2025 and the Santiago stock exchange index (IGPA) rallied a jaw-dropping 57%. The yield on Chile’s ten-year treasury bond fell to 5.3% on the eve of Kast’s election from over 6% early in the year, indicating a lower risk perception. It had risen as high as 7.1% six months into the government of President Boric. 

But experts say Kast’s plans for dramatic government spending and tax cuts at the same time are near-impossible, much less so while financing additional public security and border patrol measures and ensuring widespread demand for improved public services, particularly in health and education.

Tax cuts

Kast has pledged to cut the corporate tax rate for medium and large companies from 27% to 23%, and potentially to 20% for companies that create new formal employment. He also aims to cut government spending by US$6bn within 18 months of taking office. He says the cuts will focus on government fat, not welfare benefits or public services.

“Spending pressures are elevated in education, healthcare, and pensions. Delivering campaign commitments on immigration and security will likely require higher enforcement spending, while prioritising Chile’s large infrastructure needs. We therefore expect US$6bn of cuts to be challenging,” international credit rating agency Fitch wrote in a December comment.

They are all the more challenging because Kast’s congressional bloc does not control the national legislature. The coalition of far-right parties Cambio por Chile, which includes his Partido Republicano (PR) and the Partido Nacional Libertario (PNL), holds 42 out of 155 seats in the lower chamber and eight out of the 50 senate seats. Unless it receives support from the moderate centre-right coalition, his bloc would be short of a majority and would struggle to pass its legislative priorities.

Inevitably, Kast will have to compromise on some of his more radical campaign promises in order to ensure governability, experts say. “If Kast understands that to maintain the majority support of the population he must govern for all of Chile and not just for his radical right-wing base, his government can be successful,” Patricio Navia, a political scientist and professor at the Universidad Diego Portales, wrote in a column for El Líbero news site.

Sliding performance

To be sure, Chile has the lowest country risk premium of any Latin American economy, with a yield of 4.63% on a 2033 bond at year-end, versus 5.17% in Brazil and 5.78% in Colombia on bonds with similar maturities. Its debt level of 43% of GDP is well below the median of 57.4% for ‘A’ category countries as classified by Fitch Ratings. 

But if Chile wants to hold on to its reputation as the region’s most stable economy and continue to enjoy low interest rates that ensure cheap financing, it also must meet ambitious criteria.

And that it has not been doing. Unusually strong spending in the run-up to the election came on top of extraordinary expenses such as state‑guaranteed credit and capitalisation of public enterprises, as well as buying shares in multilateral organisations. The budget deficit in 2025 was likely around 2.4% of GDP, well above the 1.6% of GDP structural deficit target. That would have been the third consecutive year that Chile missed its fiscal target.

On the bright side, Chile’s economy is in a good position to recover quickly. Unlike Argentina, which had been shunned by investors due to decades of economic crises and interventionist economic policies, there’s a sizable pipeline of investment projects being carried out in Chile. In addition, credit is cheaper than it has been in years, and investor confidence is the highest in 18 years, as measured by the JP Morgan country risk premium.  

Finance minister

The man Kast has chosen to head the finance ministry is Jorge Quiroz, who had been his campaign advisor on economic matters. Quiroz holds a doctorate in economics from Duke University, runs his own consultancy, and is a board member of Santiago’s stock exchange. Kast supporters billed him as an “ideal” person for the job, with the necessary experience to guide the economy during challenging times, while critics say he has a track record of representing the interests of Chile’s business elites.

Upsides

Crucially for the health of public finances, the price of copper, which accounts for roughly half of the country’s exports, reached an historic high in early January 2026 amid a global race for critical minerals. Foreign direct investment (FDI) through October 2025 totalled nearly US$13bn, an increase of 14% over the previous year. The central bank projects investments to have increased 7% in 2025 and to rise a further 5% in 2026. Much of the fresh money is going into mining and clean energy, from green hydrogen to lithium.