Chile's Fiscal Squeeze Deepens as Peso Weakens Despite External Tailwinds

The Chilean peso closed the week at its weakest level in three months, breaching $920 per dollar after eight consecutive sessions of depreciation — the longest losing streak since 2018 — while the IPSA logged a weekly drop of 1.2%, deepening to 3.4% when measured in dollars. The paradox is striking: the global dollar retreated, copper regained ground and short-end U.S. rates eased, yet the local currency continued to slide, a signal that the pressure on the peso reflects domestic factors that go beyond the external backdrop. Against that backdrop, Moody's wasted no time reminding the market of what many would rather overlook: Chile has a narrower fiscal margin than its peers, and rebuilding budgetary buffers is a necessary condition for preserving the country's credit quality.

The macroeconomic canvas is hardly encouraging. Between January and April, GDP has contracted 0.7% on a cumulative basis, unemployment has climbed to 9.1% — its highest level in nearly five years, with almost one million people out of work — and the outlook for the second half offers little to cheer, with some economists anticipating that the rate could approach 10%. In that context, personal insolvency data is revealing: between January and May, debt renegotiation filings more than doubled, rising 123% versus the same period a year earlier, while liquidation proceedings grew 22.1%, according to the Superintendencia de Insolvencia y Reemprendimiento. While part of the increase reflects legal changes that broadened access to the procedure, the trend is consistent with an economy operating below its potential.

Against this backdrop, the debate over fiscal policy is taking on a new sense of urgency. The Dirección de Presupuestos is moving forward with a review of state-owned enterprises' investment plans, seeking not only to streamline spending but also to quantify the direct and indirect fiscal burden these companies represent for the Treasury. In the Senate, the ruling coalition approved the omnibus bill in general terms, and the head of Congress will set up a negotiating table to incorporate improvements to the text before its detailed vote. Meanwhile, Energy Minister Francisca Rincón expressed confidence in the progress of the bill to settle the State's debt with electricity distributors, though she acknowledged that ENAP's situation requires urgent conversations with Finance Minister Quiroz, given the scale of the imbalances accumulated by the state oil company.

From the private sector, pressure on the government is mounting. SOFOFA unveiled a labor reactivation agenda that includes five structural reforms — among them replacing the years-of-service severance system with individual accounts and universalizing childcare provision — and estimated at 210,000 the number of jobs that could be created by a four-percentage-point cut to the corporate income tax, currently at 27%, the ninth highest in the OECD. The industrial association did not mince words: "investing in Chile has become too expensive and too complex," it warned in its annual address, in line with an EY survey of more than 500 local executives showing a shift in concerns away from macroeconomic conditions toward competition and technological disruption — a sign that companies are taking a low-activity environment as given and bracing to operate within it.

In commodity markets, copper briefly broke through the six-dollar-per-pound threshold midweek, though it recovered that level by the close. JP Morgan, in its Global Research Mid-Year Outlook 2026, projects that the red metal will approach $15,000 per tonne by year-end — a gain of more than 11% from current levels — driven by the tension between COMEX-LME arbitrage and Chinese demand pressure. It is an outlook that, if it materializes, would ease the Treasury's revenue picture without resolving the underlying problem Moody's has flagged.

On the corporate front, the week was marked by regionally significant moves. Cencosud announced the acquisition of 100% of Makro Supermayorista in Colombia for approximately $158 million, financed entirely with own resources, just two days after closing the purchase of the St. Marche chain in Brazil — consolidating its bet on the wholesale format in Latin America. In the fintech ecosystem, Krealo — Credicorp's venture capital arm — took part in the $5.2 million seed round of the digital factoring platform founded by Diego Contreras and two partners, including a Xepelin co-founder; the company posts $8.4 million in revenue, manages $33 billion in stock and is preparing to expand into Peru and Colombia. For its part, Sonda is executing its largest investment plan in more than a decade — including its first capital increase in 14 years — though CFO Gonzalo Soto acknowledges that the priority is to improve operating profitability after two consecutive years of declining earnings and a restructuring that hit the businesses in Brazil and the Southern Cone.

The coming week will bring several fronts into play simultaneously: progress on the omnibus bill negotiations in the Senate, talks over ENAP's financial future, the evolution of the exchange rate against an uncertain global dollar backdrop, and the release of fresh activity data that will indicate whether the second quarter confirms or tempers the cumulative contraction. With copper hanging on signals from Beijing, public debt under the scrutiny of rating agencies and employment at alert levels, the margin for complacency is narrow.