Chile Accord Aims to Unite a Nation Riven by Social Conflict

(Bloomberg) -- Chile took a major step toward solving the social crisis that has convulsed the nation for the past month when lawmakers from almost all the parties agreed early on Friday to a mechanism to rewrite the constitution.

There was a palpable air of relief when a visibly tired group of party leaders announced the agreement at about 2:30 a.m. following yet another day of disturbances and fires across the country.

Chile has been torn apart by protests since Oct. 18 in the biggest social unrest in a generation. Protesters demanded a new constitution, arguing the current one enshrines an economic system that failed to guarantee basic rights including decent healthcare, education and pensions. The constitution was drawn up during the dictatorship of August Pinochet and protected a free market model that even allowed the privatization of water, a hot topic during the current drought.

This “signals a peaceful and democratic exit to the crisis and the building of a true social contract,” Senate President Jaime Quintana said at the press conference. “This is a victory for the whole country -- we offer for the first time a constitution that’s 100% democratic.”

Chile Accord Aims to Unite a Nation Riven by Social Conflict

The peso rallied 1.9% to 787.40 against the dollar as of 10:11 a.m. local time, paring a slump of more than 7% in the first four days of the week. The benchmark IPSA index leaped 6.7%.

Swap rates plunged as the peso rallied. Two-year swaps fell 22 basis points, the most since June, and the 10-year dropped 28 basis points. The curve, which had yesterday moved to rule out rate cuts amid the rout in the peso, is now once again looking at a possible easing.

The Mechanism

Under Friday’s accord, Chile will hold a referendum in April to decide which body draws up the constitution. One option will be a newly elected Constituent Convention, the other a mix between the Congress and a Convention.

Members will be chosen in October and will have nine months to write the charter, with the possibility of a three-month extension. The final document will need to be voted 60 days later in a plebiscite in which voting will be compulsory.

The accord represents a concession by the center-right government. While they had agreed a new constitution was necessary, they wanted the Congress to play a preponderant role in drawing it up to avoid radical changes to the charter.

Still, the accord says any agreement must be approved by two-thirds of the Convention, making broad agreements essential.

One sour point to the proceedings was the absence in the talks of a minority of lawmakers, including the Communist Party, which holds 9 out of 155 seats in the Chamber of Deputies. That may make it harder to sell the accord to some of the people who have taken to the streets in their hundreds of thousands in the past month.

End of Story?

“This is a positive development, but it is not an unequivocal sign of a ‘return to normalcy’,” said Deutsche Bank analyst Sebastian Brown in a research note. “Chile is about to embark on a process of political reform that will open up its institutional framework to fundamental changes so uncertainty will remain high.”

Chile Accord Aims to Unite a Nation Riven by Social Conflict

Plaza Italia, scene of some of the worst violence over the past four weeks, was draped in an enormous white sheet on Friday morning with the word “Peace” in Spanish hanging from the central statue.

Chile President Sebastian Pinera, who has faced increasing demands by protesters to step down, hadn’t made any public comments as of Friday morning.

Here is a list of comments on the new accord from leading politicians:

Interior Minister Gonzalo Blumel:

  • “We have had difficult days. We have all listened and we have all learned”

Renovacion Nacional President Mario Desbordes

  • “We ask the people that have legitimate demands and that have demonstrated peacefully in the streets to remain vigilant that we fulfill this pact, and that we advance in profound social reforms in parallel to the constitution”

Frente Amplio lawmaker Gabriel Boric

  • “We are here thanks to many Chileans that have risked their lives to make Chile a fairer country. Political forces have reached agreements that seemed impossible just a few days ago”

Partido Por la Democracia President Heraldo Munoz

  • “Now is the time to respond to citizens and do everything possible to build a better, fairer Chile. This fundamental charter needs to represent all of us”

Unión Democrata Independiente President Jacqueline Van Rysselberghe

  • “We sincerely hope this agreement defeats the violence that has originated in our country over the past few weeks”

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