Kast sells investment hopes abroad as joblessness hits five-year peak.

President José Antonio Kast's government arrived in Madrid this week with its most ambitious message since taking office in March, but it did so carrying an uncomfortable contradiction: while the economic team was selling Chile as an investment destination to roughly 700 investors at the best-attended ChileDay in its history, the domestic data painted an economy cooling rapidly and a labor market at its worst point in five years.

The unemployment rate reached 9.5% in the May-July rolling quarter, according to official figures, its highest level since 2021. What makes the reading especially worrying is not just its magnitude but its composition: the increase is being driven by job losers — workers losing existing jobs — rather than by first-time job seekers, signaling active job destruction rather than demographic pressure. In absolute terms, 16,292 jobs were eliminated during the period, the first decline since April 2021, in the middle of the pandemic. On top of this, unemployed workers now take an average of 8.1 months to find a new job, the longest span recorded since November 2024, according to an analysis by Horizontal. Labor Minister Tomás Rau acknowledged the situation but maintained the official target of reducing unemployment to 6.5%, without specifying a time horizon for achieving it.

Against that backdrop, the Central Bank revised down its GDP growth projection for 2026 to a range of 0.25% to 0.75%, and turned its investment estimate slightly negative. Central Bank President Rosanna Costa, who also traveled to Madrid for ChileDay, was blunt on the matter: "It is possible that the economy's recovery will take a little longer." The monetary policy rate remains at 4.5% with no clear bias, in part because inflation continues to be a concern, exacerbated by oil price tensions stemming from the conflict in Iran.

It is precisely this tension — a government selling optimism abroad while the domestic economy loses traction — that defines Kast's political moment six months into his term. According to Cadem's Plaza Pública poll, his approval stands at 34%, with disapproval at 62%, the highest since he took office. Some 62% of respondents believe the administration has been worse than expected. The average grade for the first half is 3.4 out of 7.

The government's bet to reverse that diagnosis rests on two pillars. The first is the capital markets reform, dubbed MK4, which Finance Minister Jorge Quiroz unveiled this week. The initiative, running some 250 pages, contemplates a National Housing Fund (Fonavi) to extend mortgage credit for new and used homes, a "Junior Board" for innovation and mining exploration companies, extended tax benefits for investment funds, greater international financial integration, and measures to broaden access to credit. Quiroz described Chile's capital market as "a fish tank that has been emptied" following the AFP withdrawals and the political uncertainty of prior years, where today the public sector issues 47% of bonds, up from 10% in 2016. Former Finance Minister Mario Marcel welcomed the reform with caveats, particularly backing the mortgage component and startup financing, but warned that the sustained rise in property prices is a structural obstacle that the reform alone will not resolve. From the private sector, Fernando Tisné, partner at Patria, was more critical: he said the project "moves in the right direction but falls short in ambition" and lacks the essence needed to transform Chile into an international financial hub. Eugenio Symon, capital markets coordinator at the Finance Ministry, responded that the design aims to deliver results "in the short and medium term," and that some effects should be visible within this administration.

The second pillar is infrastructure investment. Louis de Grange, dual minister of Public Works and Housing, arrived in Madrid with a concessions pipeline that it aims to lift to US$16 billion, along with a promise of legal certainty and regulatory streamlining. He spoke of extending the concessions model to new areas and of revising TAG toll rates. Daniel Mas, dual minister of Economy and Mining, delivered a more direct message to Spanish investors: "Chile is back." Mining, tourism, and infrastructure were the axes of his presentation, with an additional bet on state-owned land for high-end tourism projects.

The 2027 budget, whose deadline for submission to Congress is 17 days away, complicates the fiscal picture. The Finance Ministry has set a spending expansion ceiling of 1%, which 74% of executives surveyed by Deloitte-Cadem agree with, while also calling for prioritizing public works and housing. However, unemployment is beginning to mutate into political pressure, which could force Quiroz to give ground beyond that ceiling. A study by Rumbo Colectivo estimates that copper would give the Finance Ministry additional spending room of more than US$2 billion for 2027, though a revenue shortfall of US$220 million remains to be offset via the miscellaneous law. Banco Santander Chile, whose CEO Andrés Trautmann expressed confidence in the government's direction while acknowledging that results will take time, identifies unemployment, inflation, and global financial conditions as its main immediate concerns.

What lies ahead demands attention on several fronts simultaneously: the ChileDay closing in London on Wednesday, which will say something about the real receptivity of foreign capital; the parliamentary passage of MK4, which Quiroz himself hopes to approve before year-end; the budget negotiation over the coming weeks; and the evolution of the labor market, where job destruction — if confirmed as a trend — would turn the 9.5% unemployment rate not into a floor, but into a starting point.

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