Chile peso falls, bonds steady after govt suffers defeat in constitution vote

SANTIAGO/LONDON: Chile's peso plunged on Monday after the country's ruling center-right coalition failed to secure a critical one-third of seats in the body that will draft a new constitution, hindering its ability to check more radical proposals.

With 90% of votes counted on Sunday, results showed candidates backed by President Sebastian Pinera's Chile Vamos coalition had won only a fifth, while independents picked up the most votes.

Chile's peso fell 1.75% to trade at 720.30/720.60 to the dollar at open, though the country's sovereign dollar-denominated bonds stood their ground.

The vote to pick 155 citizens to rewrite the constitution was borne from fierce protests that erupted over inequality and elitism in October 2019, with the current constitution widely perceived to favor big business over the rights of ordinary citizens.

"It is clear that Chileans want to make a decisive break with the Pinochet era constitution, which is a great idea, but it is not quite clear where Chileans want to go," said Jan Dehn, head of research at asset manager Ashmore Group.

"The only thing that looks likely is that Chile will have a larger welfare state. Chile can afford this."

New proposals - which could include potential changes to private land and water rights as well as employment legislation - will require two-thirds approval and without a third of the delegates, the government will struggle to block radical changes to the constitution unless it can forge new alliances.

"Punishment to traditional politics, independents heterogeneity, and extreme-left edge over moderates suggest a regime of heightened uncertainty ahead," JPMorgan's Diego Pereira wrote in a note to clients.

President Sebastian Pinera said his government and other traditional political parties should heed the "loud and clear" message that they had not adequately responded to the needs of citizens. Chile, one of the wealthiest, most stable democracies in Latin America, will hold a general election in November.