Foreign investors face up to social unrest in Chile

A wave of protests in Chile triggered by a raise in transport tariffs has caused significant damage to key infrastructure and assets owned by major foreign investors of the likes of Enel and Walmart, which have had come to terms with the consequences of the country’s overlooked social situation.

Santiago and other cities have experienced unprecedented violence and looting sparked by a tariff hike on the capital’s underground transport system. The most violent fringes of the protestors vandalised as many as 78 metro stations across Santiago’s seven lines, causing damages that early estimates by state operator Metro de Santiago put at $300m.

“The underlining cause [of the protests] is not just social inequality,” said Kirsten Sehnbruch, a professor at the London School of Econonics. “The Gini index has come down significantly in the past years [although Chile remains the third most unequal economy among OECD countries]. One of the problems is that people’s expectations outpace growth and the ability of the state to create social security mechanisms. Besides, Chile is one of the most privatised systems in the world in terms of public services. Everything depends on your job, and jobs are very precarious: 35% of workers employed in the formal economy have precarious jobs. Social security doesn’t work in these conditions. At least 80% of the Chilean population are one step away from poverty if something in their household goes wrong.”

The protest targeted foreign businesses, as a conssequence of a widespread perception of growing costs of living. Italian energy company Enel, the largest supplier of electricity and largest foreign investor in the country, saw its local, high-rise headquarters set ablaze by a group of protesters. The company has been facing backlash for its tariffs policy for months.

Walmart-owned supermarket chain Lider has also faced looting and fires in some of its shops. The company reported that more than 60 shops were damaged. Banco de Chile, one of the largest banking groups of the country and jointly controlled by local tycoon Andrónico Lukšić and Citigroup, is among the highest-profile companies targeted during the protests.

“Chile has been successful in developing the economy and reducing poverty rates, but a lot of wealth distribution still didn’t take place,” said Jimena Blanco, head of Americas at risk consultancy Verisk Maplecroft. “I don’t think any investors will suddenly change their view on Chile, unless this become a recurring issue. Certainly, nobody was expecting this, and the protests are calling the attention of government to listen to social demands, but it won’t change altogether the risk perception of the country.”

The military was forced to declare a curfew in Santiago on October 19 and other major cities to limit disorder.