Chileans are heading to the polls for a referendum on a new constitution that prioritizes social rights and the environment, potentially steering a global investor favorite further away from its pro-market ethos.
Voters will approve or reject the proposed charter written by a left-leaning Constitutional Convention, thus either replacing or keeping the basic laws enacted during the 1973-1990 dictatorship. Polls indicate the new constitution will be shot down, though Sunday’s ballot is obligatory for the first time in over a decade, meaning that uncertainty is running high as turn-out spikes.
Chile’s vote is captivating investors who have had to navigate years of political tensions in one of Latin America’s richest nations. The country is split between supporters who say the text will enshrine greater equality, and detractors who argue changes go too far, crippling investment opportunities and growth. The referendum is also a test to President Gabriel Boric, who is counting on broad legal changes to implement his progressive social agenda.
The vote “is very important for Chile’s democratic history because it is the first time the country has undergone a process of constitutional change with broad citizen participation,” said Pamela Figueroa, a political scientist at the Universidad de Santiago.
Voting centers will close at 6 p.m. local time in Santiago, and the result is expected to come two to three hours after that.
There’s consensus that Chile’s constitutional process will extend well beyond the vote. If the document is shot down, Boric, a former student protest leader who has repeatedly backed the proposed document, is expected to detail plans for another attempt at rewriting the charter as soon as tonight.
On the other hand, if it passes, the president and his coalition parties have pledged to modify some of the document’s most contentious points, such as a parallel justice system for indigenous communities and restrictions on declaring a state of emergency to restore public order.
“We are constructing a country in unity,” Boric told reporters after casting his vote in his hometown of Punta Arenas. “Independently of the result, the role that my government and I, as president, will play is to have us come together as a country and advance in justice, equality and more development and growth for all.”
Political uncertainty surrounding the vote helped push the peso to a record low in July, weighed on local stocks and made Chilean bonds one of the worst-performing among emerging markets over the past month.
The S&P IPSA stock index is likely to rally more than 10% should voters reject the new charter, according to LarrainVial, an asset manager. Fixed-income investors may shift to riskier corporate bonds and longer-maturity Treasury notes if that outcome materializes, according to a Bloomberg survey.
On the contrary, the peso and local rates would see “significant weakness” if it is approved, Barclays Capital Inc. strategist Juan Prada wrote in a report Aug. 25.
Parties from across the political spectrum agreed to rewrite the constitution after the worst social unrest in four decades brought the country to a standstill in late 2019.
