Brazil & Southern Cone - July 2026

No leader likes to break a campaign promise, but President José Antonio Kast did so only three months into office, oddly by admitting he would miss a self-imposed deadline that was still nearly four years away.  On 9 June Finance Minister Jorge Quiroz published a legally mandated fiscal policy decree that formally abandoned the goal of eliminating the structural budget deficit by 2030, a flagship pledge of Kast, who took office in March.

After his predecessor former president Gabriel Boric (2022-2026) missed his own government’s deficit targets for three consecutive years, Kast had pledged during his election campaign last year to hand the next government a balanced budget and cut public spending by a whopping US$21bn, equivalent to around 5% of GDP.

That was always going to be a huge challenge, but it became increasingly clear that it was outright impossible, even after the right-wing leader ordered a 3% cut in the budgets of all ministries upon taking office.

For one, the government contends it inherited a budget built on overstated revenue forecasts and spending commitments that had never been formally recorded. Also, the economy has lost steam, as mining, agriculture and fisheries underperformed. Chile’s central bank (BCCh) on 17 June lowered its annual GDP growth forecast for this year to between 1.0% and 1.75%, from its previous projection in March of 1.5%-2.5%.

Finally, a considerable drop in Kast’s popularity, due to rising unemployment and a bungled energy policy that inflated fuel prices, meant he no longer had the political capital to push his original austerity plan. The government’s spending cuts, which included ending fuel subsidies, triggered street protests in Santiago and pushed his approval ratings from 57% at his inauguration to 38% in a survey carried out by national pollster Cadem in early July.

The government now plans to gradually reduce the structural deficit, which takes into account cyclical effects such as copper prices and economic fluctuations, from 2.6% of GDP this year 1.5% of GDP at the end of its term in four years. To close the gap, the government will have to borrow more. The public debt will continue to rise to around 45% of GDP, according to finance ministry projections. 

In most Latin American countries that level of debt would be a blessing. But in Chile, which holds the highest credit ratings in the region, such slippage is a big deal, especially because the trend has been on a downward slope for years. Consecutive budget deficits have caused Chile’s public debt to rise sharply to 41.7% in 2025. In 2025, the budget deficit reached 2.8% of GDP, well above the government’s revised target of 2%. For now, Chile's investment-grade status remains intact. International credit ratings agency Standard & Poor’s (S&P) has a credit rating for Chile of A with a stable outlook, while Moody’s last set its rating at A2 with a stable outlook.

But those ratings were built partly on the credibility of Chile’s fiscal framework. Undermining a key anchor from that framework would introduce a downgrade risk. Indeed, the agencies are watching for cracks. S&P noted in October last year that a downgrade could occur within the 24 months if economic growth weakens due to policy implementation bottlenecks or if slower growth creates persistent fiscal imbalances. That warning resonates more loudly after the 9 June decree that knicks Kast’s original budget deficit target.

Mega reform

Kast is now betting on a massive legislative reform to attract investment and help kickstart the economy. Dubbed Plan de Reconstrucción Nacional, the plan has been approved by the lower house of congress and continues to make its way through the senate. It aims to downsize the role of the state, promote business activity through tax cuts and deregulation, and cap public spending.