The Chilean electorate voted in a 4 September referendum to "reject" the proposed new constitution drafted by the constituent convention; 61.86% opposed, while 38.14% approved it.

The Chilean government will launch a new process, but probable disagreements over technicalities would indicate delay.

President Gabriel Boric, from the left-wing Approve Dignity (Apruebo Dignidad: AD) coalition, started discussions with representatives across the political spectrum to design a timeline for a second constitutional rewrite. The preferred options for the opposition center-right Chile Let's Go (Chile Vamos) is to reform the current 1980 constitution rather than introducing a new one, but it is highly unlikely to gather popular support, and they will probably back a new constitutional process. This faces delay, given the need to reach political agreement on technicalities, including the composition of the new convention, the role of Congress and the government in the process and quota requirements for indigenous groups. Overall, Chile will continue plans for a new constitution, but, if approved, it would only become fully operational in around five years' time.

A revised constitutional redraft is likely to seek an expanded role for the state although diluting prior proposals.

Popular support for a new constitution was shown in the October 2020 referendum when 78% of voters endorsed this option. The rejected proposal had been widely criticized within domestic campaigning over its complexity (388 articles), lack of definition, over-representing indigenous populations, and potential damage to the business environment. Another concern was its potential cost, estimated by domestic private-sector sources at 8.9-14.2% of GDP annually. Just like the prior proposal, a new redraft is likely to change the role of the state from "subsidiary" to "social", targeting increased state involvement in the economy, the provision of basic services and goods, and guaranteeing social rights. However, it is unlikely to include some prior proposed changes such as replacing the Senate with a Chamber of Regions, giving more powers to Congress on issues that are currently the exclusive responsibility of the president (budget and taxes), and establishing an indigenous judicial system. It is also likely to remove the requirement for consent from indigenous peoples for activity developed in their territories. Overall, a second proposal is likely to guarantee property rights and allow private investment in all sectors, albeit with higher environmental and social scrutiny. Provisions for states of emergency (allowing for military deployment during serious disruption of public order), which was left out of the proposed draft, is likely to be reinstated. Proposals on pensions are likely to be revised to protect individual savings accounts, alongside changes to allow full participation of both the public and private sector in healthcare. Labor laws strengthening the power to strike and enabling negotiations by economic sector are also likely to be reviewed.

Government agenda faces delay.

The need for a new constitutional process is likely to delay the implementation of President Boric's agenda, including proposed tax changes, as the former will be given priority. Moreover, Boric's proposals on social issues such as pensions and healthcare were aligned with the constitutional proposal and now face reassessment. Rejection of the constitutional plan despite government backing is a clear reversal for the Boric administration, reducing its ability to push its agenda through Congress, where the ruling coalition lacks a majority. Cabinet changes are very likely, particularly the removal of Minister of the General Secretariat of the Presidency (responsible for liaison with Congress) Giorgio Jackson and Minister of the Interior Izkia Siches, since they have been widely criticized by the opposition, with their removal potentially assisting a consensual new constitutional process. Internal government frictions are also likely, as Boric is supported by two coalitions, the AD and the center-left Socialismo Democrático (Democratic Socialism). The Communist Party, the more radical party within the AD and the strongest supporter of the rejected constitution, is likely to be sidelined from policymaking, leading to overall moderation in government proposals.

Delays in launching a new process will raise protest risks.

Protests throughout the country are likely in the coming days, with demonstrators continuing to demand a new constitution. Protests are most likely in Plaza Italia/Plaza Baquedano and Alameda Avenue in Santiago city center, ending in confrontations between demonstrators and the police, with the former erecting burning barricades and throwing sticks, stones, and Molotov cocktails, and the latter using tear gas and water cannon. Vandalism to nearby property is likely, such as windows broken or arson against public transport infrastructure. Other hotspots in Santiago include Villa Francia, Peñalolén, La Pincoya, Puente Alto and San Bernardo. Protests are likely to gather more people and become more violent if decisions about a new constitutional process are delayed beyond one week.

Posted 06 September 2022 by Carla Selman, Principal Research Analyst, Country Risk, S&P Global Market Intelligence

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.