Chile Bets Growth While Structural Fragility Tests Investor Confidence

The Chilean peso closed above $920 per dollar at the end of Wednesday's session, racking up six consecutive sessions of gains —its longest streak since October 2024— while Comex copper retreated more than 3% and threatened to break below the psychological US$6 per pound threshold. Thursday's session brought partial relief: the exchange rate eased some $3 to trade around $916, supported by a partial recovery in the red metal and U.S. first-quarter GDP data that beat expectations with 2.1% growth. But that breather does not disguise the underlying tension: Chile is navigating turbulent waters, with its traditional macroeconomic buffers considerably weakened.

That vulnerability has both a name and a number. According to the Dirección de Presupuestos, gross central government debt climbed from less than 28% of GDP in 2019 to 41.7% in 2025, and the Consejo Fiscal Autónomo has warned that, absent corrective measures, it could surpass the prudent 45% threshold before 2030. The three pension fund withdrawals between 2020 and 2021 pulled more than US$50 billion out of the system —close to 20% of GDP— eroding the cushion that for three decades had absorbed external shocks. As a result, every move in Federal Reserve rates or oil prices now transmits more forcefully into the exchange rate and local financial conditions. Against that backdrop, the IPSA briefly reclaimed the 10,700-point mark, though the session ended in the red on the back of falling crude —Brent slipped to levels seen before the Strait of Hormuz conflict— and a global rotation into fixed income, where the U.S. sovereign yield shed about 10 basis points on the day.

The drop in oil, however, carries a positive read-across for Chilean consumers. Finance Minister Jorge Quiroz anticipated that if Brent holds around US$69 per barrel, the Mecanismo de Estabilización de Precios de los Combustibles (Mepco) will allow cuts of more than $100 in both diesel and gasoline within two weeks, reversing part of the more than $300 rise that took hold when the government opted to neutralize the mechanism during the peak of the Middle East conflict.

That same minister starred in the week's most consequential political moment. President José Antonio Kast's mega-reform for reconstruction and economic reactivation cleared a general vote in the Senate with exactly 26 votes in favor, 23 against and one abstention —the bare minimum required, according to Quiroz himself. The victory was narrow and politically costly: La Moneda failed to bring the opposition on board, with at least 20 senators signing a letter demanding that negotiations be reopened. PC senator Claudia Pascual was the most pointed in her diagnosis, accusing the minister of seeking to "restore the State of the late 1980s." Senator Daniel Núñez, also of the PC, was even blunter: "he talks to himself, he doesn't listen to anyone." Quiroz, in response, confirmed he will file amendments that would shorten tax invariability from 25 to 20 years and tweak the design of the employment credit, without altering —he said— "the fundamental piece: future tax certainty." He will also reintroduce the controversial provision on artificial intelligence.

Pressure on the government to revive the economy and employment came from multiple flanks at once. CPC representatives met for nearly two hours with President Kast to convey their concern over unemployment and defend tax invariability. Sofofa, for its part, unveiled its "Trabajo 3x3" plan, proposing the creation of 500,000 jobs through hourly contracts, changes to the severance system and a training and investment agenda. A study by the industrial federation argues that a four-percentage-point cut in the corporate tax rate —from 27% to 23%— would generate at least 80,800 additional direct jobs over four years and could exceed 330,000 in the most optimistic scenario. Santander CEO Andrés Trautmann added his voice to that chorus, declaring himself "optimistic" about the country's current moment, though he warned of the urgent need to deepen public-private collaboration to finance infrastructure and compete for capital on the global stage.

In that effort to broaden funding sources, the government is weighing greater participation by the AFPs in the concessions system, along with dollar-denominated payments, to attract international competition. The Superintendencia de Pensiones also advanced in defining clear procedures for the establishment of new AFPs as part of the pension reform, seeking —in the words of Fiscal Valderrama— "to provide the community with clear and predictable rules." In mining, Codelco board chairman Fontaine did not rule out asset sales to address what he described as a "delicate" situation at the state-owned company, while the agreement between Anglo American Andina and Los Bronces continued to draw praise from Tokyo: Tetsuya Fukuda, senior executive managing officer at Mitsui, called it "a dream come true" and confirmed that the Japanese giant is looking for more copper opportunities in Chile. At the same time, the Escondida union turned to the Tribunal Ambiental to seek the annulment of a US$2.351 billion project approved by BHP, alleging flaws in the public participation process, adding regulatory uncertainty to the world's largest copper mine.

On the corporate front, Álvaro Saieh continued to trim his exposure to SMU as part of CorpGroup's liability restructuring, with two recent sales that brought his stake to 33.63%, following what Diario Financiero described as one of the largest divestments in his history. Meanwhile, retail trade in the Región Metropolitana posted real growth of just 1.5% in May, lifted by Mother's Day and CyberDay, although the year-to-date figure shows a 0.4% decline —a sharp contrast with the 7.4% rise recorded for all of 2024.

The agenda for the coming weeks will focus attention on the article-by-article debate of the mega-reform, where Hacienda will have to show whether the amendments announced by Quiroz are enough to broaden the support base beyond the 26 votes currently sustaining the bill. The trajectory of copper and the behavior of the exchange rate will remain the thermometer of investor confidence, while Codelco's financial situation —and the eventual decision on s