Chile has long been recognised as one of the most stable and prosperous nations in Latin America with a history of sound economic management. Chile’s success has been heavily supported by its exploitation of abundant natural resources, having held its position as global leaders in copper production every year since 1983. At present, copper exports account for 45% of Chile’s total export sales in an era where electronic innovation has driven demand ever higher. In recent weeks, Chile narrowly avoided a devastating 50% tariff on copper exports to the United States announced by the Trump administration. This exception demonstrates the strength of the Chile-US copper trade and the importance of the raw material to economic growth.

      This has translated into tangible benefits for citizens. Chile scored the highest in Latin America on the United Nations’ Human Development Index (HDI) in 2023 and the greatest economic freedom in the region as defined by the Heritage Foundation.Chile has also enjoyed a prolonged period of stable democracy since the fall of General Pinochet’s regime in 1990 defined largely by moderate and consensus politics. This was seen as at-risk in 2021 when left-wing radical Gabriel Boric took the Presidency but, for all his promises of pension and industry reform, he has settled for a more moderate position in government with many schemes being abandoned.

     However, there are a number of underlying issues in Chile which help to explain the election of an outsider. Chile is a deeply unequal society with the top 1% of the population earning a quarter of the revenue and holding half of the country’s wealth. This inequality has led to widespread protests and low levels of trust in government institutions; an unstable backdrop to present economic problems.

     Over recent years, Chile’s economy has begun to slow. Relatively low growth has been accompanied by an inflation rate consistently above 4%. President Boric is also facing public discontent, presiding over the lowest growth rate since the return of democracy in 1990. The copper industry has also been slowing. Central to this story is Codelco: the state-owned mining company and largest copper producing firm in the world.

     Established by the state in 1976 and held in public ownership ever since, Codelco has competed in the free marketplace and has helped drive economic growth for the country ever since but, over the past 25 years, productivity has been declining, reaching a nadir in 2023. A number of factors lie behind this decline. The copper mining industry is highly volatile as imperfect knowledge of the deposits, and this can lead to major setbacks. In 2022, the mine at Chuquicamata (one of Codelco’s largest) was forced to reassess its development plan and therefore delay production. Similarly, access to high-quality ores has declined, thus reducing the productivity of existing mines. Furthermore, there are more worrying causes for Codelco’s falling productivity rooted in their legal obligations. As a state-owned company, 70% of its profits and 10% of its sales is handed to the government. This has dramatically stifled the ability for Codelco to reinvest in much-needed infrastructure improvements. This has resulted in the firm facing large debts to the sum of US$20 billion by the end of 2023 followed by a downgraded risk rating from Moody’s Investor Service. Codelco’s decline is, as mentioned above, of the greatest importance around the world. The export of refined copper cathodes to the United States is significant but Chile also exports both refined and unrefined copper to emerging markets around the world including the People’s Republic of China and Vietnam as they rapidly expand their electronic industrial capacities.

     Traditionally, Codelco has enjoyed the support of politicians of all stripes, with the groundwork led by President Allende’s socialist government and implementation achieved under Pinochet’s right wing neoliberal regime. However, in the upcoming election in November, the current structure of Codelco is set to be called into question.

     On the left, the Unidad por Chile coalition recently selected communist candidate Jeannette Jara as their candidate with a promise of forced reinvestment of Codelco profits and a commitment to state ownership of the lithium mining industry – an unfulfilled promise from Boric’s radical election campaign. 

      On the right, José Antonio Kast, a conservative politician and brother of Miguel Kast (one of the “Chicago Boys” economists who influenced Pinochet-era economic reforms), has responded by arguing in favour of greater private sector involvement in Codelco with growing support from markets due to sluggish bureaucracy and rising costs experienced in recent years. While the selling of non-core assets would yield fiscal benefits, backlash from workers and unions could be substantial.

       Chilean elections operate on a run-off basis whereby, should a winner not emerge in the first round, the two top-performing candidates move through to a head-to-head second round. Recent polling has shown Jara and Kast as the two most likely to progress, presenting a clear fork in the road for Chilean politics. The choice voters face is clear: a left-wing vision that expands state control or a right-wing approach that seeks to open the door to private capital and market reforms. Both candidates are campaigning on the premise that Codelco cannot continue as it is, yet their proposed solutions could not be more different.

     President Boric’s election five years ago may not have resulted in the radical shake-up which was predicted but it captured a desire for change in Chile and, with his poor economic record, it is no surprise that the candidates on both sides are calling for change in this central element of the economy. His enduring legacy will be the rewriting of the country’s constitution to remove the old Pinochet-era form in use since the 1990s.

     With the determination of a winner less than a month away, much can change as the election enters the run-off. However, it is clear that the economy and specifically the mining sector is at the centre of this election and, with the left and the right offering radically different solutions, Chile’s reputation for pragmatic economic management and moderate politics may be at risk.