A seemingly unremarkable four-cent hike to the Santiago subway fare has sparked chaos in Chile, with additional proposals to raise other public transport fares as well as energy prices exacerbating the situation.
President Sebastian Piñera’s response was initially tough – in a televised address, he went as far as to say that the country was "at war" and that Chileans "should pick sides". He declared the country to be in a "state of emergency" and imposed a curfew. Bloomberg reports that c20,000 military officials are deployed across the country to ensure safety, particularly on roads, in supermarkets (many of which have been looted) and at service stations.
Last night, though, after five days of riots, the president was much more conciliatory (after first reversing the fare hike), saying that "he had listened with humility to the voice of his fellow Chileans and to the discontent over the cost of living". In the same address, Piñera also said that he would put together a "working group" to try to find solutions to the factors causing the discontent, lifted the curfew, and stated that he would be meeting today with the leaders of the country's political parties to reach "a social agreement" to "resolve the country's problems".
Our view is that Piñera’s main challenges are, first, to prevent a further escalation, and, second, to find a way to address the discontent, taking care of an economy that has weakened slightly as a result of the relatively low copper prices.
Despite this, we continue to see Chile as one of the most stable countries in the region, and believe that the current situation will be resolved soon. Precedents for this are the student demonstrations during former president Michelle Bachelet's second term – these were resolved with dialogue and the implementation of measures that were agreeable to all parties. Chile remains the most advanced democracy in Latin America and, typically, when popular concerns are addressed in a swift manner, agreements are reached relatively soon.
Because of this, we believe investors have an opportunity to go long Chile credits, as we believe that stability will return to the country within days or, at worst, within a couple of weeks.