Brazil & Southern Cone - October 2026

President José Antonio Kast and his economic team in September unveiled a comprehensive reform plan to revitalise what was once considered a model for Latin America – Chile’s capital market. The measures included in the reform bill that was presented to congress aim to generate more sources of financing for the country’s economic development by making its capital market more active and efficient.

“We’ve lost the possibility of having long-term loans; well, it’s going to get better,” President Kast said on 9 September during the presentation of the project. It is considered the largest reform to the capital market since 2010 and is dubbed ‘MK4’ because it is the fourth overhaul of the sector after bills in 2001, 2007, and 2010.

Due largely to Chile’s system of private pension funds (AFPs), the country has the largest capital market in Latin America in comparison to the size of its economy. But to some extent the country’s financial market fell victim to its own success. The dominance of Chilean AFPs crowded out other market participants, as they buy and hold the bulk of fixed-income securities without trading them in the secondary market.

Then came the coronavirus (Covid-19) pandemic which decapitalised AFPs because the government authorised Chileans to make large withdrawals from their pension funds to alleviate the ensuing economic crisis. As a result, the market lost much of its strength, relying more on foreign investors.

In a technical assistance report released in May 2025, the International Monetary Fund (IMF) summarised the situation as follows: “Secondary market trading in fixed-income securities is thin, as most investors buy and hold. Turnover on the stock exchange in fixed-income securities is equivalent to about US$150bn per month and has fallen from its peak in 2018, not least in response to the three pension fund withdrawals in 2020-21. Government bond turnover has been particularly badly hit (falling from about 13% to under 3%).”

In developed markets, pension funds use excess liquid funds to purchase securities, or they can use long-term securities as collateral to raise cash through repurchase agreements (repos) for short-term needs. This allows them to manage short-term liquidity, implement liability-driven investment (LDI) strategies, and optimise portfolio yields.

In Chile, the lack of a developed repo market undermined resilience, making the financial market vulnerable to shocks such as a sudden credit crunch, interest rate hike, or currency depreciation, the IMF had warned. In addition to the dominance of the AFPs and their temporary undercapitalisation, there are other reasons that weigh on Chile’s repo market, including legal, regulatory, tax, and accounting issues.

Under the Kast government’s legislative proposal, new rules and streamlined bureaucracy are to allow more companies to raise debt, pension funds to raise cash and manage liquidity, and consumers to obtain cheaper mortgages to buy a home, amongst other regulatory changes designed to deepen and modernise the capital market. 

“In recent years, Chile has been eroding investment savings, yet we want to grow and see our economy regain its dynamism,” Daniel Mas, minister of economy, development, and tourism as well as minister of mining, told La Tercera newspaper on 9 September. “It is not just a matter of the scale of investment; it affects families struggling to buy their own homes, startups shut out of better financing options, innovations that cannot be funded, and mining exploration projects thwarted by a lack of capital,” he said.

Housing Fund

Indeed, one of the centre pieces of the reform is the creation of the National Housing Fund (Fonavi), a state-backed mechanism designed to inject liquidity into the mortgage market and expand homeownership access. It will be managed by the state-owned Banco Estado and will receive state contributions of up to US$2bn, with an initial contribution of US$500m.

The reform will also set up the Voluntary Home Savings scheme (Ahorro Voluntario para la Vivienda) to be used for a down payment on a first home, new or used, of up to 6,000 UF (an inflation-indexed unit of account, currently equivalent to US$247,000 or Cl$246m). To access the benefit, the buyer must have saved 7% of the property value over 30 months. Then the state will contribute an additional 3%. Together that 10% will be the downpayment for a house. In addition, the cap on the state-paid bonus for voluntary pension savings would increase from 6 to 8 UTM (a tax unit adjusted monthly for inflation, with 8 UTM equivalent to Cl$577,208 at time of writing) per year.

“This project starts with the most fundamental thing, which is addressing the problem of access to housing. Access to housing for young people who now find it difficult to get their first home,” Finance Minister Jorge Quiroz explained.

To help finance startups in technology and innovation as well as junior mining companies, the government also proposes to lower the high financial and administrative barriers that prevent them from accessing the public equity market. Under the motto ‘junior stock market’, companies will not have to comply with traditional registry requirements and can designate a sponsor that will oversee corporate compliance, financial reporting, and ongoing risk disclosure. Other incentives include a 35% tax credit for investments in such companies and tax write-offs for early-stage greenfield exploration expenses.

Foreign portfolio investors who trade only in such startups would be exempt from having to obtain a Chilean tax identification number (RUT), which had been considered a considerable bureaucratic hurdle. Certain financial services provided to foreign clients could be eligible for VAT exemption, and the exemption from stamp duty will be extended for certain loans obtained abroad.

“We cannot get the economy moving without the financing provided by a robust capital market. If we want to return to serious, sustainable, and progressive growth, we must give the financial market room to breathe so that everyone—from the largest to the smallest—can save and secure financing with a view toward real growth,” said Mas.

Indeed, the extensive legislative proposal comes as Chile’s economy is running out of steam. GDP has contracted by 0.2% year-on-year in the second quarter of 2026 and showed zero quarterly growth. This followed a 0.3% year-on-year contraction and quarterly contraction of 0.3% in Q1. The central bank in its September monetary policy report projected economic growth of as little as 0.25-0.75% this year, down from earlier projections of 1-1.75% in June. This could potentially be the worst growth figures since 2009, with the exception of the pandemic-induced contraction in 2020.

“In addition to supply problems, there’s been a deterioration of the labour market, a drop in confidence, and an increased weakness of consumption and investment,” Rosanna Costa, the central bank president, told Chile’s senate when she presented the monetary policy report on 9 September.

• Economic slowdown

The September edition of the central bank’s monetary policy report (IPoM) highlighted issues such as weaker domestic spending and lower mining output. The report also suggested that activity has weakened through the year, with supply-side factors hitting output in the first quarter, while the second quarter saw a slowdown in both public and private demand, a deteriorating labour market, falling confidence indicators, and higher fuel costs. Another factor contributing to Chile’s weaker growth outlook has been adverse weather conditions, including severe storms in July and August.

CAF funding

The Latin American development bank (CAF) announced on 15 September that it would make US$6bn in financing available to Chile over the next four years, with the aim of supporting the government’s economic agenda and boosting private investment. According to a CAF press release, the funding will support housing and employment, infrastructure, water, and security, and the bank also stated that it will support the government’s capital market reform and efforts to boost home ownership.