Brazil & Southern Cone - June 2026

When José Antonio Kast became president of Chile on 11 March, the country’s equity markets rallied and the value of the peso rose amid investor optimism that the far-right leader would push business-friendly reforms and economic growth. More than three months later, that prospect looks far less certain, partially due to global headwinds but also to homegrown problems.

Since his inauguration, Kast’s approval rating plummeted more than 20 percentage points to 36% in May, the worst rating at that stage of any presidency in at least two decades, according to a Plaza Pública opinion survey carried out by polling firm Cadem. The Santiago stock exchange index (Ipsa) also retraced sharply, giving back all of its 2026 gains over the period.

Public opinion and investor sentiment soured quickly as Kast’s promised fiscal discipline began to materialise. Within days, Finance Minister Jorge Quiroz – a US-trained economist and founder of a corporate consultancy – announced across-the-board cuts in all ministerial budgets, the first instalment of an ambitious plan to slash public spending by US$6bn over eighteen months and to bring under control a public debt-to-GDP ratio that had reached 42.6%.

More controversially, the government effectively eliminated the state fuel price stabilisation mechanism (Mepco) that had smoothed the pass-through from global energy costs to domestic pump prices. As a result, the fallout of rising global oil prices was exacerbated, producing a self-inflicted inflation shock.

Freight transport tariffs jumped 30%, stoking prices across the entire consumer basket, and the annual inflation rate climbed to 4% in April – a figure the central bank had only just succeeded in taming after four years of effort. The abrupt end to fuel subsidies drew criticism even from sympathetic market participants, who argued the removal could have been phased in far more gradually without jeopardising fiscal consolidation.

Not surprisingly, Kast’s popularity fell the most in lower income households, the Cadem poll showed. Unemployment climbed to 9.1% for the rolling quarter of February-April 2026. After contracting in the first quarter of the year, the economy has also remained lacklustre and could dip into a recession.

To be sure, Chile’s investment-grade sovereign credit rating and the independent central bank provide a credibility floor that distinguishes the country from regional peers. Investment bank Morgan Stanley forecast the stock exchange to rise another 23% by year-end from mid-May levels, provided Kast’s ambitious economic reform program dubbed Plan de Reconstrucción Nacional clears congress.

The bill encompassing more than 40 economic, fiscal, and social measures, passed the lower house of congress on 21 May with 90 votes in favour and 59 against, well above the simple majority required and above the government's own internal expectations.

The legislation essentially aims to downsize the role of the state, promote business activity through tax cuts and deregulation and cap public spending. The passage of the so-called mega reform demonstrates that Kast can build coalitions beyond his natural base.

Still, the question is whether he can replicate that in the senate, where the dynamics of coalition building are far more complicated. Kast’s waning popularity and the ongoing threat of protests potentially weaken the government’s hand. “This bill is not at all popular,” Ignacio Imas, public relations manager at Santiago-based consulting firm Imaginaccion told national daily La Tercera. “Public opinion surveys show us that the people continue to think that this proposal benefits those who have more.”

In his first state of the nation speech on 1 June, Kast doubled down on his proposal to downsize the state, slash taxes, and deregulate the economy to help attract investment and accelerate economic growth. Kast explicitly linked fiscal responsibility to national security and other social expenditures, reiterating his pledge to target annual economic growth of 4% and reduce the unemployment rate to 6% by creating at least 300,000 jobs.

“Every peso the government allocates to pay interest on a mismanaged debt is one less peso we have for security, for health, for education, for pensions, for housing,” the president said. “Reducing the tax burden on our companies is the single most effective way to breathe life back into our economic growth and restore Chile’s competitiveness on the global stage.”

In a message aimed at the demonstrators, Kast also threatened to crack down more harshly on vandalizing protesters. “No one who burns a bus, no one who destroys public property deserves free education,” he said.

Looking forward, the question appears to be less whether the bill will pass the senate than in what condition it will do so. Less controversial issues such as the employment tax credit and the tax system reintegration are unlikely to face major obstacles. On the other hand, the corporate tax rate cut as well as the proposal granting a 25-year tax stability, both of which are main elements driving economic growth and shareholder value expectations, face more opposition and are likely to be amended.

Public pessimism

Cadem’s mid-May poll, which showed a 36% approval rating for President Kast, also included figures suggesting significant public pessimism over the economy. Over three quarters (76%) of survey respondents believed the economy was stagnating or declining, and only 22% perceived signs of economic progress. When asked about the job market, 82% of respondents had a negative view of employment prospects in Chile, while 15% expressed a positive view. Regarding consumer confidence, 74% expressed a negative perception, while only 23% said they felt good about consumer purchasing power.

Criticism

Critics say the omnibus bill amounts to a set of giveaways to Chile’s wealthiest. Left-wing deputies and the Communist Party argued that cuts in corporate taxation and the reintegration of the tax system disproportionately benefit large capital owners, with the opposition framing the measure as one that “favours the super-rich”. Several parties announced they would file constitutional challenges which could extend the legal dispute beyond congress to the constitutional court. The reform now moves to the senate, where the government faces a tighter arithmetic: Kast’s coalition holds 25 of 50 seats, leaving the upper chamber evenly balanced and negotiations considerably more complex.

The mega reform plan

The centrepiece of the legislation is a gradual reduction of the corporate income tax rate from 27% to 23% between 2027 and 2029. The government argues that Chile’s corporate tax burden is the highest in its history and constitutes a structural brake on private investment.

The reform also reintegrates the tax system, meaning that corporate income tax paid by a company is fully creditable against the final taxes (dividend/personal income taxes) its shareholders owe. When a system is integrated, companies and their owners are treated as a single economic unit, preventing the same earnings from being taxed twice. This has been a longstanding demand from the business community.

A 12-month capital repatriation window offering a flat 10% levy on undeclared offshore assets aims to bring foreign-held resources back into the domestic economy.

Elimination of the 10% flat tax on capital gains from listed securities would restore their treatment as non-taxable income to boost liquidity and depth in financial markets.

Another measure is a 25-year tax stability statute for domestic and foreign investments exceeding US$50m. This would include protection against future tax changes and, in the case of mining, against changes in royalties and mining licences.

Additional measures include the elimination of VAT on residential property purchases; a tax exemption on property rates for pensioners; formal employment incentives through corporate tax credits for new hiring, accelerated permitting (including environmental) for investment projects, and reconstruction financing for regions devastated by the 2024 Valparaíso fires and the January 2026 wildfires in Ñuble and Biobío.