Unemployment at five-year high triggers Chile's governance crisis

Unemployment in Chile has reached 9.5%, its highest level in five years, and that single data point now concentrates most of the country's political and economic tension, turning a statistical figure into the axis of a nascent governability crisis that José Antonio Kast's government is facing simultaneously in Congress, at the UN, and in the labor market.

The Chamber of Deputies held a special session on Tuesday devoted to employment, an unusual setting that reveals just how far the labor issue has spilled beyond technical debate to become direct political confrontation. The opposition, particularly Frente Amplio, targeted Labor Minister Tomás Rau as the face of a government that in barely six months has allegedly destroyed more than 177,000 net jobs, according to figures cited by Deputy Gael Yeomans. The ruling coalition responded by recalling that unemployment remained above 8% during much of the previous administration, turning the debate into an exercise in shared responsibility that benefits no one. What is concrete is that the government is preparing an emergency labor plan that could be announced later this week, targeting 25,000 additional jobs in the fourth quarter, supported by accelerated public investment in the Public Works and Housing ministries, action from municipalities coordinated through Subdere, and a strengthening of the Unified Employment Subsidy, set to take effect on October 1. The combined amount of that subsidy can reach up to $185,000 per month per worker, between the contribution to the employee and to the employer, but its scale and speed of implementation remain open questions.

Sofofa, for its part, did not wait for the government and presented its own reactivation agenda with five measures, among them the replacement of the years-of-service severance system with an individual account managed by the AFC, the universalization of childcare, and improvements in working-hours flexibility. The childcare proposal is already meeting resistance in the Chamber, where the 14 PDG deputies warned they will not back the financing formula that offsets the new contribution with a cut to Unemployment Insurance payments, leaving the government with a complicated legislative arithmetic.

As the domestic debate intensified, President Kast made his debut before the UN General Assembly with an 18-minute speech that functioned as a statement of intent toward international markets. "Chile is back," he declared, explicitly calling for investment in the country and drawing a critical line against the policies of the past decade. The contrast between that outward-facing message and the reality of unemployment at a five-year high is the central knot of the day.

The markets, however, operated with relative independence from the political turbulence. The IPSA closed up 0.61% at 11,426.83 points, supported by rising copper and falling Brent crude, which retreated to US$99.1 per barrel amid signs of diplomatic rapprochement between Washington and Tehran. The dollar closed slightly below $950, in a volatile session marked by Trump's UN speech, which temporarily raised tensions in the Middle East before the president himself confirmed direct contacts with Iranian counterparts. Central Bank board member Kevin Cowan noted that the effect of the Fed's decision on the local exchange rate should be "limited" over the monetary policy horizon, a signal of relative calm from the monetary authority.

On the fiscal front, the Autonomous Fiscal Council struck a more constructive tone in its September 4 minutes than in previous meetings, anticipating a greater likelihood of meeting the 2025 structural balance target — a notable shift after three consecutive years of noncompliance. Economist Cecilia Cifuentes was unanimously approved by the Senate Finance Committee to join the CFA, though she still requires 34 votes on the floor, meaning at least eight opposition votes. Cifuentes outlined her priorities as restoring the credibility of the fiscal rule, containing public debt, and rebuilding Treasury assets.

In parallel, S&P upgraded Latam Airlines' credit rating to the highest level since the group's creation, highlighting its "solid performance despite market volatility," a positive signal for the Chilean corporate sector with international reach. The CMF, at the opposite end of the regulatory spectrum, fined Asesorías e Inversiones A&C — a firm linked to Cristián Araya and partners — $1.024 billion for 34,038 operations involving fictitious quotes on the Santiago Stock Exchange between March 2022 and September 2024, in what the regulator described as a systematic price manipulation scheme. The sanction reinforces regulatory pressure on the integrity of the local market, an issue the MK4 bill also seeks to address, though the reform faces its own bottlenecks: debates on Fonavi, the Fraud Law, and warnings from GEM Mining Consulting about potential fiscal losses if the law is applied in isolation, without building a real junior mining ecosystem.

Collective bargaining at Minera Escondida, operated by BHP, adds another variable to the picture. The company presented its final offer to Supervisors' Union No. 2, including $23.5 million net in closing conditions, a 36-month contract, and increases of between 10% and 53% across various allowances, in a context the company itself describes as one of lower production levels and cost pressure. Workers consider the proposal insufficient, with the September 30 deadline looming before the current contract expires.

What lies ahead will set the tone for the quarter: the resolution of the Escondida negotiation will determine whether the mining sector enters a phase of labor conflict at a moment when copper is holding up the local market; the announcement of the government's emergency labor plan will test its execution capacity more than its political will; and the final Senate vote on Cecilia Cifuentes will reveal whether the ruling coalition can build cross-cutting majorities on fiscal matters — the only area where markets appear willing to give the government the benefit of the doubt.