Chile’s Government Is Proposing Steps to Draw Up a New Constitution

(Bloomberg) -- Chile’s peso fell to a record low after the administration of President Sebastian Pinera said it would overhaul the constitution drawn up during the dictatorship of Augusto Pinochet in an attempt to calm three weeks of mass protests.

Interior Minister Gonzalo Blumel made the announcement on Sunday speaking after a meeting of the ruling coalition. The constitution would be drafted by “a constituent congress” and then ratified through a plebiscite, he said, adding that more detailed proposals would be presented in the next few days.

“A new constitution changes all of the rules and makes people very nervous,” said Felipe Alarcon, an economist at financial services firm Euroamerica. “There is speculation that some sectors may try to strengthen some social rights at the cost of private property rights.“

It was the government’s biggest step yet in response to the worst civil unrest since the restoration of democracy in 1990. Daily protests over the rising cost of living and inequality in South America’s wealthiest nation have often turned violent, with 20 people losing their lives and thousands injured. One of the chief targets of the protesters is the constitution.

“It’s a big concession from the government and the right as they never wanted to consider this in the past,” said Robert Funk, a political science teacher at Universidad de Chile. “It may cause a rift between the more violent groups, that want nothing less than Pinera to resign, and the middle class that has demands of its own.”

While some protesters may say the announcement was insufficient, the market response implied investors thought it was too much.

The peso closed 1.7% lower at 760.43 per dollar, a record, according to data compiled by Bloomberg. The previous low of 759.75 was set 17 years ago in Oct. 2002.

Market Bulwark

Drawn up under the dictatorship of Pinochet, many people regard the constitution as the foundation of an economic system that privatized pensions and much of health care and education, a chief grievance of protesters. It also enshrined the strict legal safeguards to private property that are behind Chile’s water privatization, a controversial subject in a country struggling with severe droughts.

The fact that laws drafted during one of the country’s most authoritarian periods remain in place has always been a bone of contention. According to a Cadem poll conducted between Nov. 6 and Nov. 8, 78% of people are in favor of changing the constitution.

The ruling coalition said yesterday’s announcement should help restore calm to the streets.

“There can’t be any more excuses for not reestablishing social peace in the country,” said Jacqueline Van Rysselberghe, head of the right-wing Union Democrata Independiente party. “Now let’s sit down and talk,” she said in an interview with Radio Pauta.

Not So Fast

It won’t be easy to get protesters on board. The lack of support for the political establishment, one both sides of the political divide, could undermine the credibility of the process, according to Jose Miguel Insulza, a senator from the opposition Socialist Party.

“Anyone who thinks that the current Congress can write down a new constitution may be fooling themselves,” Insulza said in a radio interview with Pauta. “It may not have enough legitimacy.”

The equity market also reacted negatively to the announcement, with the S&P IPSA benchmark index closing 1.5% lower. About $23 billion in market capitalization of stocks in the S&P IPSA has been destroyed since the unrest began.

To contact the reporters on this story: Javiera Baeza in Santiago at jbaeza1@bloomberg.net;Eduardo Thomson in Santiago at ethomson1@bloomberg.net

To contact the editors responsible for this story: Daniel Cancel at dcancel@bloomberg.net, Philip Sanders

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