Chile's Fiscal Gamble: Growth Targets Slashed, Deficit Cuts Threatened

The government of President José Antonio Kast is facing its sternest test yet: convincing markets, technocrats, and the public that a fiscal consolidation plan built on moderate growth assumptions is both credible and sufficient to stabilize Chile's public finances without choking off an economy that is already flashing worrying signs of deceleration.

Finance Minister Jorge Quiroz appeared on Wednesday before the Senate Finance Committee to defend the fiscal decree unveiled on Tuesday, which charts a path of structural deficit reduction from -2.6% of GDP in 2026 to -1.5% in 2030. The endpoint represents a meaningful concession: Kast came to power promising to close his term with annual growth of 4%; Quiroz disclosed that the scenario underpinning the decree assumes average expansions of 3% for 2027-2028 and 3.5% by 2030. The minister himself conceded that the long-term copper price, currently projected at US$5.5 per pound, could be revised downward to US$5.3 by the technical panels. The market, for its part, was even more pessimistic: the Central Bank's Economic Expectations Survey released on Wednesday showed a further trim to the 2026 growth projection, while cutting the annual inflation estimate to 4.1%, with analysts anticipating a flat CPI reading in June. The monetary policy rate would remain at 4.5% at least through December.

The technical reception was cautious. Former Finance Minister Felipe Larraín described the structural deficit target of 1.5% of GDP at the end of the term as "realistic," according to remarks gathered by Diario Financiero, while his counterpart from the Frei administration, Eduardo Aninat, warned about the timing and "the nature of the adjustments" implicit in the miscellaneous reactivation bill, flagging the political risk surrounding its passage. Several specialists consulted by the same outlet agreed that the decree embeds a severe spending cut for 2027 and that public debt will breach the prudent threshold—a reading Quiroz himself sought to downplay by arguing that the Autonomous Fiscal Council "is only repeating what we wrote," as reported by La Nación. Political tensions also spread to municipalities: mayors of high-income districts in the Metropolitan Region honed their strategy ahead of a key meeting with Quiroz on Thursday, demanding full restoration of the US$70 million that the property-tax exemption for senior citizens will leave uncompensated in the Common Municipal Fund, according to La Tercera.

Against that backdrop of fiscal fragility, the IPSA retreated during Wednesday's session, dragged down by the slide in global equities amid Donald Trump's renewed military threats against Iran. Latam Airlines shares were the most visible drag on the index, which only on Tuesday had logged its biggest gain in 14 months following seven straight sessions in the red. The dollar held steady. External pressure was not confined to financial markets: at the Sociedad Nacional de Agricultura seminar, both Minister Jaime Campos and the trade group's president, Antonio Walker, sharply rejected the 12.5% tariff Washington is applying to Chile over alleged links to forced labor in imports. "We cannot accept unjustified tariff changes," Walker said, while Campos disclosed that he had inherited a 50-billion-peso shortfall in his portfolio upon taking office. The Energy Minister, meanwhile, traveled once again to Argentina to visit Vaca Muerta alongside the Foreign Minister, deepening the gas-integration agenda that aims to turn Chile into an export corridor to third markets.

The corporate front delivered headline moves of its own. Betterfly, the Chilean labor-benefits unicorn, announced the acquisition of Mexican startup Minu for US$100 million, adding more than one million corporate users and paving the way for its entry into the U.S. market. In the steel sector, India's Tega Industries closed the global purchase of Molycop for US$1.5 billion, a transaction that involves assets in Chile where Molycop was a key client of Huachipato. On precisely that industrial front, AZA's top brass met with the mayor of Talcahuano to outline the steelmaker's restart, in what general manager Hermann Von Mühlenbrock described as a model of public-private partnership. BCI revalued CAP shares with an estimated 20% upside potential, underpinned by iron ore prices and the agreement with AZA, which contemplates cash payments of US$25 million deferred between 2027 and 2029, plus shares equivalent to 15% of the combined company valued at US$62.5 million. Compañía Minera del Pacífico, CAP's subsidiary, announced the departure of its general manager Francisco Carvajal on June 12 after nearly seven years, with Carlos Sepúlveda stepping in on an interim basis while a permanent successor is determined. In the dairy segment, Peru's Gloria group called an extraordinary shareholders' meeting of Soprole Inversiones for June 26 to merge it with its parent IGC S.A., simplifying a corporate structure that currently includes three subsidiaries; Link Capital Partners will conduct an independent valuation of the company, which as of March posted revenues of 888.024 billion pesos and a 32.6% market share.

The CEP survey released Wednesday—the first since Kast took office—added a political dimension that is hard to ignore: 52% of Chileans disapprove of the president's performance, the negative perception of the country's economic future nearly doubled relative to prior readings, and public debt is emerging as a growing citizen concern, according to Diario Financiero. Fifty-one percent believe the President is not willing to reach agreements with the opposition, according to La Tercera.

Looking to the days ahead, the spotlight will fall on the floor vote on the minimum wage—which the Senate Finance Committee cleared with a retroactive increase to 553,553 pesos as of May 1—on negotiations over the miscellaneous bill and the property-tax exemption, and on Thursday's meeting between Quiroz and metropolitan mayors. On the corporate side, Soprole's June 26 shareholders' meeting will set the pace for Grupo Gloria's reorganization in Chile, while the definitive naming of Carvajal's successor at CMP will be the most visible signal on the strategic direction of the country's leading iron ore producer.