S&P highlights Chile’s economic recovery process, but warns of risks

RIO DE JANEIRO, BRAZIL  – The new constitution, Chile’s mining royalty, and electricity tariffs appear to be the main risk factors for the Chilean economy, according to an update to S&P Global’s Latin America Corporate and Infrastructure Outlook report.

The document notes that costs for companies could increase due to the new charter, while warning that water use rights could be revoked, requiring new investments (e.g., in desalination plants) or increasing operating costs for companies.

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“To address higher budget expenditures, regular policy channels could also change current tax and levy systems,” S&P said.

On the mining levy already approved by the House of Representatives, the agency warned that if the initiative gets the green light in the Senate, “it could wipe out excess profits at current high copper prices.”

On electricity, S&P said “downward pressure” on rates is increasing for both spot and contract electricity prices as the supply of energy from renewable sources increases.

“In the last four years, the share of renewable energy in total supply has increased to about 25%, and we expect it to reach the country’s target of 70% by 2030. In addition, Chile is implementing a plan to eliminate coal from its energy mix by 2040,” the report states.

REACTIVATION

In addition to the risk factors, however, the agency’s study briefly analyzed the recovery process of the Chilean economy, which was described as rapid due to vaccinations, copper prices and government stimulus measures.

“Sixty-eight percent of Chile’s population is fully vaccinated, the highest among other countries in the region. This should make the country less vulnerable to setbacks from the pandemic and severe shutdown measures, implying better economic prospects and a more stable economic trajectory,” the report said.

S&P also left some lines for AFP (pension fund) withdrawals. It did not rate that process, saying it “supports a rapid recovery in areas such as the consumer sector.”