Chile markets rally as Boric readies Cabinet

By Fabian Cambero

SANTIAGO – Chilean investors and traders are on tenterhooks ahead of the expected unveiling of President-elect Gabriel Boric’s first Cabinet on Friday, seen as a key signal for markets about how the leftist may steer the Andean copper producing nation.

Boric, a 35-year-old lawmaker and former student protest leader, jolted markets last year when he won the country’s presidential election, pledging major reforms to Chile’s market-led economic model.

He has moderated his tone since, helping bolster Chile’s markets and propel the currency as one of the best performing in the world so far this year, with speculation mounting he could name a relative moderate and technocrat to lead the finance ministry.

The peso currency strengthened early on Friday to under 800 per dollar for the first time since November.

Chilean peso has rallied from record low: https://graphics.reuters.com/CHILE–ASSETS/PESO/gkvlgbynbpb/chart.png

“A part of the political risk hindering the Chilean peso since October 2019 has receded,” said Jorge Selaive, chief economist at Scotiabank Chile, adding the market was expecting a moderate left-wing candidate to lead the economic portfolio.

Boric has kept his cards close, but names for the finance ministry that have drawn speculation include current central bank chief Mario Marcel and market-friendly economists such as Guillermo Larrain, Roberto Zahler or Máximo Pacheco.

Chile, a global frontrunner in vaccine roll-out, ended last year as the world’s best-performing economy, buoyed by large state spending and several rounds of private pensions withdrawals to ease the impact of the COVID-19 pandemic.

Boric, who comes into office on March 11, will however have to content with signs of an overheating economy and inflation.

“One of Boric’s biggest challenges will be cooling down the economy and retaining popular support,” Oxford Economics said in a report, adding the young leader would face pressure to increase social spending while meeting tighter budget targets.

During the campaign, Boric pledge to “bury” Chile’s market-orientated model, which has driven growth in the South American country in recent decades but has also deepened inequality, triggering months of social protests at the end of 2019.

He has promised to reform the private pension and health systems and raise taxes to finance greater social spending.

Boric, however, faces a fragmented Congress, which analysts say will force him to moderate the adjustments he makes and seek consensus with more centrist sectors.

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Chilean peso has rallied from record low https://tmsnrt.rs/3rEpA0i

Chilean peso has rallied from record low (Interactive) https://tmsnrt.rs/3qL0Uny

Latin America bond yield spreads https://tmsnrt.rs/3ryvBvG

Latin America bond yield spreads (Interactive) https://tmsnrt.rs/3KumAMH

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