What impact will Chile's new president have on business? What impact will Chile's new president have on business?

What impact will Chile's new president have on business?
20 Apr 2018

Chile has to date managed to maintain a reputation as a stable, functioning country with clear and relatively simple business rules that have changed little over the years.

But December's election saw former conservative president Sebastián Piñera re-elected after a four-year gap, taking over from socialist Michelle Bachelet, who had backed Piñera's opponent. Chile has, in fact, switched back and forth between Piñera and Bachelet since 2006.

Since Piñera's new reign began in December, the government’s various ministries have started to take shape, giving people an idea of where Piñera plans to take things. So far it looks as if he will run a centre-right government, with a good balance between new and experienced people.

Some ministers have already been part of previous cabinets such as Minister of Finance Felipe Larrain. He served here between 2010 and 2014 under Piñera's previous government and has vast experience of local business matters.

A government’s first 100 days is typically when decisions are made and when some of its most emblematic projects kick-off. Therefore, the market is waiting to see what it does and to understand the impact of tax and labour reform that the new government plans to submit to Congress. The expectation is that this reform will once again simplify the system and balance up the tax burden by reintegrating various tributary tax systems.

What we do know for certain is that, due to Chile’s membership of international bodies such as the Organisation for Economic Co-operation and Development, it will continue to remain transparent in relation to global regulations such as the Common Reporting Standard and the Foreign Account Tax Compliance Act

Slow and steady

The country ended 2017 within financial expectations, experiencing low levels of growth and inflation. The coming year is also anticipated to see inflation fall within forecast limits and growth is still ongoing. As yet, it is still too early to tell what impact any new moves by Piñera may have.

But one thing is for sure - he will aim to bring in more foreign investment. One of the main ways of attracting foreign direct investment (FDI) is by introducing simpler and more effective business regulations.

Over the last few years, some projects supported by FDI have been delayed because of their significant environmental or social implications. As a result, it is likely that work will be done to ensure greater legal certainty over such long-term initiatives, which have sometimes been cancelled after having gone through lengthy approval processes.

Action on local business development issues is also probable as such matters likewise have a direct bearing on FDI .

Expectations of economic growth are not high at between 1.7% and 3%, and a large growth spurt considered unlikely. But slow and steady wins this race, as the old adage goes.

Instead the biggest change affecting businesses in Chile this year is likely to be tax reform. Action could also be taken on labour issues, but doing so will take time.

Pensions could also come under the spotlight as there has been little regulatory change here for years, and a broad consensus now exists that it is time for reform. But any shift here could influence Chile’s capital markets as pension funds are considered very important to the country, representing as they do more than 80% of GDP. Moreover, as any changes affect citizens and their retirement plans, they eventually also have an impact in the country's financial system.

Despite the change of leadership then, it is business as usual in Chile as the country continues to move towards simplifying its regulatory environment. This means that it remains a safe and predictable prospect for foreign companies wanting to invest in South America.

Cristian de la Cerda

Cristián de la Cerda is managing director of TMF Chile, where he and his team support businesses expanding into or investing in the country. Cristian has more than 30 years’ experience in international professional services relating to finance, tax compliance, accounting, auditing and information technology. He was formerly a partner at Coopers & Lybrand, Andersen and Ernst & Young.

 

Chile has to date managed to maintain a reputation as a stable, functioning country with clear and relatively simple business rules that have changed little over the years.

But December's election saw former conservative president Sebastián Piñera re-elected after a four-year gap, taking over from socialist Michelle Bachelet, who had backed Piñera's opponent. Chile has, in fact, switched back and forth between Piñera and Bachelet since 2006.

Since Piñera's new reign began in December, the government’s various ministries have started to take shape, giving people an idea of where Piñera plans to take things. So far it looks as if he will run a centre-right government, with a good balance between new and experienced people.

Some ministers have already been part of previous cabinets such as Minister of Finance Felipe Larrain. He served here between 2010 and 2014 under Piñera's previous government and has vast experience of local business matters.

A government’s first 100 days is typically when decisions are made and when some of its most emblematic projects kick-off. Therefore, the market is waiting to see what it does and to understand the impact of tax and labour reform that the new government plans to submit to Congress. The expectation is that this reform will once again simplify the system and balance up the tax burden by reintegrating various tributary tax systems.

What we do know for certain is that, due to Chile’s membership of international bodies such as the Organisation for Economic Co-operation and Development, it will continue to remain transparent in relation to global regulations such as the Common Reporting Standard and the Foreign Account Tax Compliance Act

Slow and steady

The country ended 2017 within financial expectations, experiencing low levels of growth and inflation. The coming year is also anticipated to see inflation fall within forecast limits and growth is still ongoing. As yet, it is still too early to tell what impact any new moves by Piñera may have.

But one thing is for sure - he will aim to bring in more foreign investment. One of the main ways of attracting foreign direct investment (FDI) is by introducing simpler and more effective business regulations.

Over the last few years, some projects supported by FDI have been delayed because of their significant environmental or social implications. As a result, it is likely that work will be done to ensure greater legal certainty over such long-term initiatives, which have sometimes been cancelled after having gone through lengthy approval processes.

Action on local business development issues is also probable as such matters likewise have a direct bearing on FDI .

Expectations of economic growth are not high at between 1.7% and 3%, and a large growth spurt considered unlikely. But slow and steady wins this race, as the old adage goes.

Instead the biggest change affecting businesses in Chile this year is likely to be tax reform. Action could also be taken on labour issues, but doing so will take time.

Pensions could also come under the spotlight as there has been little regulatory change here for years, and a broad consensus now exists that it is time for reform. But any shift here could influence Chile’s capital markets as pension funds are considered very important to the country, representing as they do more than 80% of GDP. Moreover, as any changes affect citizens and their retirement plans, they eventually also have an impact in the country's financial system.

Despite the change of leadership then, it is business as usual in Chile as the country continues to move towards simplifying its regulatory environment. This means that it remains a safe and predictable prospect for foreign companies wanting to invest in South America.

Cristian de la Cerda

Cristián de la Cerda is managing director of TMF Chile, where he and his team support businesses expanding into or investing in the country. Cristian has more than 30 years’ experience in international professional services relating to finance, tax compliance, accounting, auditing and information technology. He was formerly a partner at Coopers & Lybrand, Andersen and Ernst & Young.