CHILEAN REFERENDUM

CONTEXT

The people of Chile resoundingly rejected a new constitution that was set to replace a charter imposed by General Augusto Pinochet 41 years ago amid heavy turnout for the referendum, 61.9%of the voters rejected the draft document.

NEED FOR A NEW CONSTITUTION

Demand for greater equality and more social protections –

• More than 30% of the population is economically vulnerable and income inequality remains high.
• Inequality is spurred by the involvement of private sectors in social realms.

HOW WAS THE NEW CONSTITUTION DRAFTED

• 79% of voters suggested that a directly elected constitutional convention be entrusted with this duty.
• A second vote conducted between May 15 and 16 in 2021 elected the members of the constitutional convention
• The 155-member convention reserved 17 seats exclusively for indigenous people –ensuring representation of the varied communities constituting approximately 12.8% of the country’s total population as per the 2017 census.
• To ensure gender parity, it was mandated that neither gender can have more than 55% representation in the convention
• Also, independent members were to be in majority
• The constitutional convention in charge of the process commenced work in July 2021.

  PROPOSED AMENDMENTS

REFORMS IN THE PENSION SYSTEM 

• Chile’s 1981 Pension system mandated that all wage and salary workers pay a percentage of their gross earnings into a pension fund administered by varied private pension fund administrators (AFPs)
• Profit-making national or foreign liability companies managed social security funding. The earlier system based on the pay-as-you-go mechanism had ensured that pensions were not subjected to financial market fluctuations.
• The incumbent Finance Minister of Chile Mario Marcel pointed out that the 1981 system allowed for a lower level of contributions from workers and companies compared to other countries.
• President Boric had proposed replacing the private sector held system with a public one- among the biggest demands during the 2019 protests.
• Changes to the Chilean pension system could affect the ability of Chilean corporates to raise financing in the local market.
• The existing system encourages national savings and is the primary source of local financing for long-term investment projects used by many companies in the country

MINING TAXES AND ROYALTIES

• President Boric had proposed setting up a national lithium company. Chile is the world's second-largest producer of lithium after Australia.
• Recent amendments have stipulated that the state has an “absolute, exclusive, inalienable and imprescriptible domain on all mines.
• Exploiting natural resources (such as coal and copper, among others) has helped Chile prosper but fostered sizeable social inequality.
• The text of the amendment permitted certain “mining concessions “only if they serve the public good as determined by the judiciary
• Fitch stated that a change in direction could hinder investments in the sector, especially large long-term investments.
• It added that potential concerns include the increased role of indigenous people in new project approvals, changes in property and water rights, and unclear terms of compensation if an asset is expropriated.

WATER RIGHTS

• The new Chilean constitution was to also grant freedom to own all properties and goods, except those which “nature has made common to all men “or which should be collectively owned by the country as a whole.
• A qualified quorum law would establish requirements for the acquisition of properties to better serve the interests of the nation, including considerations about national security, public health utilities, and preservation of the environment. It recognizes that the environment must be preserved and it is the right of the community to live in an environment free of contamination.
• The erstwhile constitution's 1981 water code let the government grant "free water rights "to private entities. This ended up creating a market for water with the state unable to supply enough for domestic consumption.
• A proposal to annul free water rights for private concerns was approved in an initial vote by the convention’s environmental committee. This effectively meant that mines, agribusinesses, and utilities would have to seek temporary permits to use water.
• Additionally, the revised mechanism would prioritize human consumption, stability of water reserves, and indigenous rights.