(Bloomberg) -- Conservative presidential candidate Jose Antonio Kast and leftist rival Gabriel Boric will square off in a runoff next month, setting the stage for Chile’s most divisive election since the return of democracy in 1990.
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With 89% of ballots counted, Kast had 28% of the vote followed by Boric with 26%, according to data from electoral body Servel. Chileans will return to the polls on Dec. 19 for the second round.
At stake is the future of Chile’s investor-friendly economic model that has sustained rapid growth, but left many people behind. Kast, 55, pledges lower corporate taxes and the preservation of pro-market rules while campaigning on a law and order, family values platform. Boric, a 35-year-old former student leader, wants to raise levies for companies, overhaul the pension system and boost social welfare benefits.
Chile, which has long been among the most prosperous and predictable democracies in Latin America, has been rocked by social and political volatility since violent street protests broke out in October 2019. The unrest led the outgoing government of President Sebastian Pinera to approve a referendum to rewrite the constitution which passed by a wide margin. The text will be drafted and put to a vote next year.
“The results make clear that the traditional parties have lost all footing in the electorate, but that the new parties are not yet able to sustain large majorities,” said Jenny Pribble, associate professor of political science at the University of Richmond. “All of this means that whoever is elected the next president of Chile, they will likely face challenges for governing and a very volatile political environment.”
The outcome of the third, fourth and fifth place candidates may hold keys to how a runoff would play out. Franco Parisi was the surprise of the election, placing third with 13%, Sebastian Sichel of the center right has 12.6% while Yasna Provoste of the center left has 11.8%.
Parisi, a celebrity economist living in Alabama who hasn’t campaigned in Chile, could play the role of kingmaker. Turnout was below 50% which has become more common since voting was made voluntary.
In his speech, Kast called for efforts to attract supporters of Provoste, Parisi and Sichel for the second round and demonized Boric and the Communist Party.
“We’re going to recover peace, order, progress and our freedom,” Kast said. “On December 19, Chile has to choose between freedom and communism.”
Markets, which have been whiplashed on concerns over future economic policy and the new charter, may rally on the result, according to Klaus Kaempfe, director of portfolio solutions at Credicorp Capital in Santiago. The peso could trade closer to 810 per dollar compared with 830 on Friday, while stocks should rise between 3% to 5%, he said.
“Clearly this is a resurrection of the right and the results show a country that’s more balanced and from the center,” Kaempfe said in an interview. “Neither of the extremes surpassed 30%. That’s a good sign since they’ll have to moderate.”
Chileans have pulled $49 billion out of private pensions in the past two years to soften the blow of the pandemic, putting pressure on local capital markets while capital flight and dollarization of savings has hit the peso, which has been among the worst in emerging markets in 2021. The country still holds an investment grade rating and has among the lowest borrowing costs in the region.
A trained lawyer and onetime lower house lawmaker, Kast is running for the nation’s top job for the second time. He is a member of the Partido Republicano, and has expressed admiration for the late dictator Augusto Pinochet. He’s been criticized for taking a hard line on immigration and against same-sex marriage.
Boric became a nationally-recognized figure after helping to command protests over the cost and quality of education a decade ago. He now forms part of the Frente Amplio coalition and serves as a lower house deputy. In recent weeks he’s moderated his comments and tried to create some distance with allies from the Communist Party.
Pinera survived an impeachment motion last week and has seen his approval rating tumble to about 16%.
Mining impact
There’s also plenty at stake for mining companies and their ability to supply the metals needed for a clean energy transformation.
Chile accounts for more than a quarter of the world’s mined copper and boasts the largest reserves of lithium, a key component in batteries used in electric vehicles.
While Kast wants to open up state copper behemoth Codelco to private capital as part of an investor-friendly approach, Boric plans to raise taxes and create a state lithium company.
The elections are playing out as congress debates a copper royalty bill that the industry says would imperil tens of billions of dollars in investments. At the same time an assembly of predominantly independent and left-leaning representatives are behind the drafting of the new constitution that may lead to tougher rules on water, mineral and community rights.
Copper accounted for half of Chile’s exports last year and 11% of its GDP.
Whoever wins in December will face challenges in sustaining an economic rebound from the pandemic as inflation accelerates and the central bank raises rates. The constituent assembly can also complicate the next mandate depending on what’s written into the new charter, including the possibility of changing the role of the president. A Kast win could revive the protest movement.
“It’s very hard to say who has the upper hand because it’s difficult to know if voters who turned out for other candidates will show up in the second round,” Pribble said. “It’s relatively safe to assume that many Provoste and Sichel voters will turn out for Boric and Kast, respectively, but it’s far less clear how the Parisi voters will behave.”
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