Chilean peso hits five-year employment collapse as copper plunges

The Chilean peso closed Thursday as the worst-performing emerging market currency in the world, weakening $13.90 to end at $941.40 per dollar—its highest level since July 24 and its largest daily jump in three months—in a session that brutally distilled the multiple vulnerabilities facing the Chilean economy: falling copper prices, inflationary pressures in the United States, geopolitical escalation in the Middle East, and a labor market that has just posted its first net job destruction since the pandemic.

The immediate trigger was copper. The red metal fell to US$6.45 per pound on the London Metal Exchange, retreating from recent record highs on signals that inflationary pressures in the United States have stalled Washington's tariff decisions on the refined metal. Traders are now pricing in a 70% probability that the Federal Reserve will hike rates at its next meeting—up from 62% before the Producer Price Index release, which rose 0.4%—while oil climbs to US$106 per barrel, fueling global risk aversion. For Chile, which relies on copper for more than half of its exports, the combination is lethal: a weak currency, rising energy costs, and tightening international financial conditions precisely when the domestic economy is showing its greatest fragility in years.

Those fragilities crystallized this week with figures that make optimism difficult. Unemployment reached 9.5% in the quarter ending in July, completing four consecutive months above that threshold—its highest levels in five years—and marking 43 months above 8%. More seriously, 16,292 net jobs were destroyed compared to the same period last year, the first negative reading since April 2021. The unemployed now number over 981,000, and first-time job seekers rose 20.9% year-on-year. The situation triggered an unusual public dispute between Finance Minister Jorge Quiroz and Labor Minister Tomás Rau over the government's target of reducing unemployment to 6.5% before the end of the administration. Rau, who initially downplayed the objective, later fell in line with Finance, though the discussion revealed internal tensions over the feasibility of the government's macroeconomic targets. The UDI, meanwhile, demanded that the 2027 Budget be entirely oriented toward job creation, while SOFOFA proposed in its annual address a four-percentage-point cut to the corporate tax rate—from 27% to 23%—which, according to its analysis, would generate between 80,800 and 330,000 additional jobs over four years. The convergence between political urgency and the business community's prescription does not make the solution any easier: a tax cut would require legislative debate in a Congress already saturated with an overloaded agenda.

That Congress must now process the MK4 capital markets reform, whose review began this week and which Minister Quiroz hopes to pass with a broad parliamentary majority. The bill, whose central pieces include the National Housing Fund (Fonavi)—a vehicle with initial capital of up to US$2 billion and the ability to leverage up to ten times, potentially mobilizing US$20 billion in mortgage credit—received backing from the Inter-American Development Bank. IDB President Ilan Goldfajn met with President José Antonio Kast and committed US$1 billion annually from IDB Invest in Chile, focused on unblocking investment permits, critical minerals, and attracting data centers. BancoEstado President Mario Farren was more specific: Fonavi could finance more than 220,000 homes in the coming years, and he opened the door to the mechanism replacing the current Fogaes.

However, MK4 faces resistance that goes beyond parliamentary arithmetic. Experts and institutional operators warn about the reduction of historical quorums that protected minority shareholders—among them, lowering from two-thirds to absolute majority for voluntary delisting from the securities registry and easing the mandatory 30% minimum dividend—combined with the creation of multiple-voting shares and the reduction of the squeeze-out threshold from 95% to 90%. The DC caucus described the bill as a "Trojan horse" that benefits large capital at the worst possible moment, with inflation projected in the September IPoM at 4.3% by year-end and growth that the Central Bank itself cut to a range of just 0.25–0.75% for 2026. In return, the reform introduces the "business judgment rule" into Chilean corporate law, following the Delaware model and German and Spanish reforms, which corporate lawyers value as a significant advance in corporate governance. Economist Ricardo Hausmann added another layer of geopolitical complexity by warning that the main external risk for Chile, Peru, and Colombia comes not from China but from Washington: commercial rapprochements with Beijing could generate friction with the White House at a time when Chile is still negotiating the terms of the 12.5% tariff imposed by the Trump administration, defending the validity of its 2004 FTA as a non-negotiable red line.

Amid this backdrop, second-quarter results from the IPSA offer a fragmented picture of the corporate sector. Earnings in pesos grew 14% year-on-year—20% in dollars—but five companies concentrate nearly 60% of the US$4 billion in profits for the period, and half of the index reported declines or losses. Copper production fell 9.4% in July compared to the same month last year, dragged down by Codelco, Escondida, and Los Pelambres, accumulating a 7% drop year-to-date. Copec, in parallel, agreed to acquire the Tamarico II solar park in Atacama—165 MWp photovoltaic and 725 MWh of battery storage—raising its solar capacity to 550 MWp, a sign of investor appetite in renewables that contrasts with the general slowdown in fixed capital investment, projected to fall 0.3% this year.

Next week will bring the Fed's decision—with the market pricing in almost with certainty another rate hike—the start of Chile Day in Madrid and London, where the Energy Minister aims to position the country as a data center hub, and the first parliamentary debates on MK4. What happens with the exchange rate and copper in that window will define the tone of the rest of the quarter for an economy that, according to the Central Bank itself, has no margin for more negative surprises.

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