Even as its neighbours dominate talk of complexity and difficult business environments, Chile has maintained a reputation as a stable, functioning country that has clear, relatively simple business rules - and, above all, that these rules they have not changed over the years.
But December's election saw former conservative president Sebastián Piñera re-elected after a four-year gap, taking over from the socialist Michelle Bachelet, who had backed Piñera's opponent. Chile has, in fact, switched between Piñera and Bachelet since 2006.
Since Piñera's new reign began in December, we've seen market expectations begin to consolidate. The various ministries are shaping up, giving people an idea of where Piñera will take this government, and it looks like this will be a center-right government with a good balance between experienced and new people. There are even some ministers who have been part of previous cabinets, such as Minister of Finance Felipe Larrain - he served in this position between 2010 and 2014 under Piñera's previous government, and has vast experience in local business matters.
Typically, the first 100 days of government is when decisions are made and when some of the most emblematic projects kick-off. The market is therefore waiting to see the results and impact of the tax and labour reform the new government will submit to the congress. The expectation is that this reform will simplify the system again and balance the tax burden among different economic agents by reintegrating various tributary tax systems.
What we do know is that Chile will continue to remain transparent on global regulation such as CRS or FATCA. Companies don't consider these a matter for debate or complaint because they understand these are reasonable constraints for a country that participates in groups such as the OECD and which is aimed at achieving greater openness to foreign trade.
Slow and steady in the Chilean market
Chile ended 2017 within expectations, with a low level of growth and inflation. The coming year, too, has inflation within forecast and upward corrections of growth are permanent. It's still too early to tell, though, what impact any new movements by Piñera will have.
One thing is for sure: Piñera will look to bring in more foreign investment. One of the main drivers for attracting FDI is having better (and simpler) regulations. During the last few years some projects have been on the spotlight due to significant environmental or social implications; this is regularly a reason to put a brake on investment projects in Chile. Most likely, progress will be made towards having greater legal certainty about long-term projects, which are sometimes proven to be non-viable after having gone through lengthy processes.
Conversations and actions around the conditions for local business development will also be interesting, given local investment agents can attract foreign investors. Expectations of economic growth are not big - a growth of approximately 1.7% to 3% today sounds reasonable - and there is no expectation that Chile's economy will reach a growth spurt. Slow and steady wins this race.
Tax reform will really be the big change impacting business in Chile this year. We could see actions on labour issues, but I believe that any reform made to labour will take time. Likewise, we may see pensions take the spotlight, as regulation there has not had any significant change for many years. There is a broad consensus that it is time for pension reform. These changes could have an impact on the country's capital market since pension funds are very important for the country – representing more than 80% of GDP - and as any change has an impact on people (meaning social aspects such as the retirement of employees) it eventually has an impact in the country's financial system.
Despite the change in leader, then, it's business as usual in Chile. We expect the country will continue to be transparent and continue its moves towards simplification. It is a safe and predictable prospect for foreign companies looking to invest in South America, and our experts remain expectant to discuss what any changes mean for your investment. Contact us for more information.
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