• Chile: Agreement for a new constitutional process with sufficient restrictions that limit chances of extreme proposals
  • Peru: S&P changes outlook from stable to negative amid protests backdrop

Trading was muted overnight as markets mostly hold to the ranges left over from North American dealing after the US CPI miss. Commodity prices are mixed with crude oil firming up in European hours alongside rangebound metals. Singapore iron ore is flat, not getting a hand from news that China will in fact go ahead with its economic work conference side-stepping Covid risks—and may see some additional covid policy or stimulus announcements come out of this. The USD is weaker against most major currencies, still reeling from the ‘soft’ print yesterday, as markets seemingly position for a less hawkish Fed decision this afternoon.

The Latam day ahead will consist of headlines watching, amid no notable data or events, with the situation in Peru of particular interest.

Peru’s Las Bambas mine is quickly exhausting storage capacity as protests and road blockades prevent the shipment of copper ores, which could eventually see the mine shut down production. The country’s Def Min Otarola has said that the military will clear roadblocks and defend airports to prevent economic disruption; the risk of more casualties from more violent clashes with demonstrators should not be ignored.

Pres Boluarte said yesterday that she will attempt to bring forward elections even more instead of waiting until April 2024 as was originally the plan. This is not surprising to us, it seems increasingly unlikely that the country will accept such a long wait and we may see elections occur as soon as is logistically possible.

We also continue to monitor speeches from Lula’s team in Brazil after he appointed Mercadante to head Brazil’s development bank in a move that has been poorly received by local markets concerned with loose lending. Lula accompanied this announcement with a statement that “the privatization drive will end”, and to foreign companies that “don’t come here to buy our state-run companies, because they are not for sale. Come here to invest.”

—Juan Manuel Herrera



After months of negotiations, the main political parties signed an agreement for a new constitutional process yesterday. The agreement includes the creation of a Constitutional Council whose fifty members will be chosen by Chileans, a 3/5 vote share necessary for proposals to be included in the document’s draft, and a 24-member commission of experts that will draft a preliminary constitutional proposal and draw up institutional pillars that the project must contain (i.e., limits) (table 1). 

Table 1: Chile—Constitutional Itinerary (Proposed in the Agreement)

The constitutional mechanism has sufficient boundaries to hinder the approval of extreme proposals, thanks to the 3/5ths requirement and the creation of the Commission of Experts and the Technical Admissibility Committee. Additionally, in the election of the members of the Constitutional Council, the center-right parties could achieve more than 20 representatives (2/5), which would give them the ability to block any proposal. This has a high probability of occurring since the independent candidates will not go on separate lists, as it was in the previous constitutional process, but within party lists. Furthermore, the center-left parties represent more than 2/5 in both chambers today, so it would be expected that this representation will be replicated in the Constitutional Council.

The details are as following:

  • Minimum foundations ranging from the respect for property rights to the consecration of Chile as a unitary and decentralized state with three State branches, and the consecration of certain autonomous bodies such as the Central Bank and the principle of fiscal responsibility.
  • There will be 3 bodies in the constitutional process:

1. Constitutional Council: composed of 50 people elected by direct popular vote, with parity and indigenous seats. This body has the sole purpose of discussing and approving a proposed text for a new Constitution, dissolving once the task entrusted has been accomplished. The proposed constitutional norms will be approved by a 3/5 majority.

2. Commission of Experts: composed of 24 experts elected by the Congress; half from the Senate, half from the House. This body will be in charge of drafting a proposal that will serve as the basis for discussion and drafting of the new constitutional text.

3. Technical Admissibility Committee: composed of 14 jurists with an outstanding professional and/or academic career, who will be elected by the Senate. This body will be in charge of reviewing the norms approved in the different instances in order to determine a possible inadmissibility of these if they are at odds with the institutional bases.

—Waldo Riveras



S&P Global Ratings downgraded Peru’s outlook from stable to negative on Monday, arguing that it foresees a tumultuous period for the government. S&P ratified Peru’s BBB rating, but has signaled that this could be revised if more adverse political events were to affect policy or worsen institutional stability.

What S&P is saying, in our view, is that it doesn’t see any clear light at the end of the tunnel, and that political instability represents a large risk for reliable economic policy to continue. The outlook change was announced too late in the day to impact markets on Monday, with little obvious impact on trading yesterday. The news seems to have been largely taken in stride by the markets, perhaps because it was an outlook change, and not a ratings downgrade.

The decision by S&P came amidst a wave of protests and shortly after President Boluarte had proposed early elections to be held in April 2024.

Protests were especially violent on Monday, December 12, when a number of deaths were registered among protesters, dozens of police were injured, the airport in Arequipa, Peru’s second largest city, was taken, albeit briefly, and the Gloria milk processing plant was set on fire.

It is not easy to separate truth from fiction as events are fluid. However, and at the risk of our opinion being overtaken by events, the following public information from police sources is notable. The first is that while protests have been taking place in various cities and have been quite violent at times, they have not been massive. The second is that leftist radical leadership would reportedly be providing financial and logistics resources to protestors, which has given the protests more oxygen. Thirdly, regional “prefects”, which are the regional representatives of the central government and are in charge of maintaining order, were promoting, rather than controlling, disturbances. As a result, they were all sacked by the government on Monday. Note that this cohort of prefects had been appointed by ex-President Castillo and were drawn from Perú Libre and the radical left.

The situation, then, appears to be one in which protests, rather than massive, are very militant and violent, which give them a weight that is greater than their numbers. Wednesday will be crucial to determine whether these groups are able to expand from their support base, or whether their size is manageable enough to enable the police to contain them. The situation is putting Peru’s institutionalism to the test… yet again.

—Guillermo Arbe