The overwhelming victory of the president-elect was a favorable sign for economic growth and fiscal order
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Chile's country risk reached its lowest level in almost two decades after the electoral victory of right-wing candidate José Antonio Kast in the presidential runoff, a result that was interpreted by markets as a favorable signal for economic growth and fiscal order, a situation that is practically identical to what happened in Argentina with the victory of Javier Milei.
The improvement in financial indicators reflects greater appeal for Chilean assets and a reduction in the perception of risk by international investors.
One of the most relevant data points was observed in the sovereign default insurance market. According to Chilean outlet La Tercera, on Monday, Chile's five-year Credit Default Swaps (CDS), an instrument that protects debt holders against a potential state default, fell to 43.299 basis points, below the 43.979 points recorded on the Friday before the elections. This is the lowest level since January 3, 2020, when it stood at 40.689 points.
Javier Milei y José Antonio Kast.
The indicator is also clearly below the 54.868 points observed before the first round of the presidential election, accumulating since then a drop of nearly 12 basis points. On Tuesday afternoon, the CDS showed a slight rebound and stood at 43.73 points.
The other key indicator for measuring country risk is the EMBI, compiled by JP Morgan. This index, which tracks the performance of emerging market bonds, closed on Monday at 86 points, a slight decrease compared with the 87 points on the Friday before the runoff. That level had not been recorded since July 24, 2007.
Similar to the CDS, the EMBI also shows a downward trend since before the first round of the presidential election, when it stood at 97 points, which implies a reduction of 11 basis points in the period.
The indicator's trajectory so far this year reinforces this reading. On the first business day of 2025, Chile's country risk stood at 120 points, well above the current level. In turn, it is far from the 213 points reached on September 29, 2022. At the regional level, Uruguay continues to be the country with the lowest risk, with 65 points, while the Latin American average fell from 1.38 to 1.37 points.
Economists and analysts link this evolution to the expectations caused by the president-elect's economic program. Sergio Lehmann, chief economist at BCI, stated that "there is greater appetite for Chilean assets, in an economic context that is read as more favorable for the coming years. There is a strong conviction in Kast's next government to put public finances in order, with a significant fiscal adjustment that will ensure a balanced budget within three years."
José Antonio Kast, presidente electo de Chile.
Kast's plan
Kast's program includes a reduction in public spending of USD 6 billion over a period of 18 months, in addition to a cut in the corporate tax rate from 27% to 23% for medium-sized and large companies.
For Luis Felipe Alarcón, economist at EuroAmerica, the current levels of country risk are "consistent with José Antonio Kast's victory, since his government program includes the reduction of the fiscal deficit, which is positive for the quality of Chile's debt."
