1. Why are Chileans writing a new constitution?

The current constitution dates from the military dictatorship of 1973-1990. Although it has been amended several times since Chile’s return to democracy, it is widely considered illegitimate due to its origins during the reign of General Augusto Pinochet, a violent dictator whose rule included arbitrary arrests and political executions. Critics of the current constitution argue that elements of it contribute to the inequalities and weak social safety net that have fueled the unrest, while giving the private sector too dominant a role in delivering public services. On the other hand, many are seeking to retain the nation’s business-friendly rules, arguing that they have been key to Chile’s economic growth and stability.

2. What is the public opinion on the issue?

Since around the end of March, polls have shown that voters are heading towards the rejection of the project. According to Cadem, which carries out polls and market studies, part of the public has lost confidence in the members of the Constitutional Convention and does not agree with the approved articles. Polls show that the top reasons cited for approving the constitution include wanting to secure health care and housing rights and having a magna carta that was crafted during democracy. Polls show that many voters are undecided, with estimates as high as 27%.

3. Where are things going?

Three committees of the Constitutional Convention are finalizing the details of the draft document. An organization corrects the charter for any contradiction or error; another writes a preamble; the third is to decide on the articles governing the period of transition to the new constitution. The committees convened after 10 months of debate and voting during which convention delegates included 499 items in the proposal. Chile’s draft is about 49,600 words, about 10 times longer than the US Constitution.

4. What are the highlights?

On social issues, the charter includes measures that strengthen the representation of indigenous communities, establish a national health care system and strengthen environmental safeguards. It broadens the central bank’s considerations in its policy decisions, allows expropriations on the condition that the owner is “fairly” compensated, and makes water use authorizations temporary and revocable. A controversial proposal to nationalize the mining industry was rejected. The constitution also contemplates replacing the senate with a weaker regional chamber, leaving most legislative power in the hands of the lower house.

The convention will release its final draft to the public in early July. The battle lines are already drawn. The far-right Republicanos party has become one of the first to publicly reject the convention’s work, saying it “has failed in its mission to write a constitution that represents the Chilean people and lays the foundations for development. future”. Meanwhile, influential ex-president Michelle Bachelet backed the charter, saying in a Bloomberg interview that it offered a new “social contract”. The current head of state Gabriel Boric also supported the new magna carta. On September 4, all eligible residents will vote in a mandatory vote where a simple majority will be needed to approve or reject the document. If he is brought down, the current constitution will remain in effect.

6. What triggered this process?

A period of mass protests began on October 18, 2019, sparked by an increase in Santiago metro fares. Protesters quickly expanded their complaints to include, among other things, low pensions and shortcomings in the health and education systems. The unrest, which eased in early 2020 near the start of the pandemic, forced shops to close, disrupted key transport links and stalled investment decisions. To ease tensions, former President Sebastian Pinera agreed to the 2020 referendum to determine whether Chile would rewrite its charter and what type of body would be in charge of doing so.

7. How are investors reacting?

In general, investors and key policymakers such as central bank president Rosanna Costa said the constitutional process is keeping local assets low given the uncertainty it creates. Going forward, there are discrepancies on how the new magna carta would play out. Morgan Stanley economists wrote that the draft constitution would not disrupt Chile’s macroeconomic policy framework, and the exclusion of extreme articles is positive for fixed-income assets. Analysts at JPMorgan Chase & Co. wrote that this would weaken local institutions, although the stock market has already priced in much of that deterioration.

More stories like this are available at bloomberg.com