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The ongoing constitutional rewriting process in Chile has increased political and economic uncertainties, discouraging corporates’ growth plans, Fitch Ratings says. Here capital Santiago. (Latinvex archives)
Dominican President Luis Abinader flanked by Tourism Minister David Collado (left) and World Tourism Organization secretary general Zurab Pololikashvili (right). (Photo: Dominican Tourism Ministry)
Wednesday, May 11, 2022
Trade Talk

Fitch: New Chile Constitution Raises Uncertainty


Dominican Republic singled out as world leader in tourism recovery.

BY LATINVEX STAFF

The ongoing constitutional rewriting process in Chile has increased political and economic uncertainties, discouraging corporates’ growth plans, Fitch Ratings says.

“Although we do not expect our ratings to be immediately affected, the reforms have heightened longer-term risks as they could increase obstacles for developing projects in the country, including obtaining project approvals, weaken property rights, and reduce the availability of local financing due to changes to the pension system,” the ratings agency says. “If the new charter is approved, its implementation will require supporting legislation, which will take time, extending the period of uncertainty.”

Chilean corporates have tempered their growth strategies to reflect these uncertainties. Fitch expects such capex cutbacks to become more apparent in the longer term, due to time-lags in projects’ planning and execution. This will affect economic growth and employment, putting pressure on many corporates.

“The new constitution will transform a business-friendly environment into a more social-focused one,” Fitch says. “The changes could affect companies, particularly in the mining and forestry sectors, discouraging them from large long-term investments. Potential concerns include an increasing role of indigenous groups in new project approvals; changes to property rights, with unclear terms of compensation if an asset is expropriated; and changes to the status of water that eliminate the ability to trade water rights and introduce the need to obtain temporary authorizations for water use from a new government agency. The changes in water regulation could affect industries such as agrobusiness, aquaculture, mining and electricity. Revaluation of companies’ assets as a result of the changes could affect their covenants.”

Meanwhile, changes to the Chilean pension system could affect the ability of Chilean corporates to raise financing in the local market, Fitch warns.

“The details about the future system contained in the new charter are vague, but the changes rule out the continuation of the current pension system, which is managed by private companies,” the rating agency points out.

Although the changes to the constitution could be rejected by a referendum planned for September, Fitch rules out that the current constitution remains in place, given the overwhelming support to re-write the constitution during the referendum in 2020.

DOMINICAN TOURISM HIGHLIGHTED

The World Tourism Organization highlighted the Dominican Republic as the world leader in tourism recovery after the COVID pandemic.

"When we assumed power [in August 2020] we saw that the economic growth of the industrial sector was beginning to recover, the free zone sector as well, among others, but not the tourism sector and if we did not recover that sector we would not recover the Dominican economy," said President Luis Abinader during a ceremony with the WTO.

Abinader and his tourism minister David Collado have won widespread praise for their pro-active handling of the tourism sector to ensure the least damage from the pandemic.

Meanwhile, Collado points out that despite the loss of 60,000 Russian and Ukrainian tourists a month, April set a new record. That follows the string performance in the September-December period last year, where each month set new records for arrivals.

The Dominican Republic is the second-largest recipient of international tourists in Latin America after Mexico and the third-largest recipient of tourism receipts in the region, according to a Latinvex analysis of 2019 data from the World Tourism Organization (WTO).

 

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