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Credit: NTB/ Orlando Barria


Erlend Fredriksen, CFA

Erlend Fredriksen is Portfolio Manager for the Emerging Markets Team, covering Latin America.

Erlend Fredriksen joined the company in 2017. Erlend is part of our Emerging Markets team, covering Latin America.

Erlend holds an MSc in Finance from the Norwegian School of Economics (NHH), Norway. He is a CFA charterholder, is fluent in the Scandinavian languages and English, and at a beginner level in Portuguese and Spanish.


We have all probably heard of the butterfly effect – the notion that small changes in complex systems can cause huge, unpredictable effects. Recently, a small hike in subway prices in Santiago led to massive protests in Chile, with potentially global implications.

The protests escalated quickly

On the 4thof October, an expert technical panel approved a price hike for subway tickets in Santiago, the capital of Chile. Two days later, on the 6th, the fare hike became effective. The citizens of Santiago, however, did not like this increase. They did not like it one bit.

Students were the first to dissent. Protest groups encouraged them to evade paying the subway tickets. A mere week later, more people had jumped on the bandwagon. Massive evasions were becoming rampant. Police were called in to secure subway stations.

On the 18thof October, exactly two weeks after the approval of the price hike, the transport minister publicly denied a reversal of the said hike. It didn’t take long before things escalated. By 1 pm several subway stations were closed due to protests. By 3 pm, subway lines were being closed. By 7 pm the entire subway system shut down.

Protests in Santiago, Chile
77 subway stations were partially or damaged during the riots in Santiago. (Credit: NTB /Alberto Valdez)

And then things escalated even further

Protests got out of control. Whole subway stations and subway trains were set on fire; the headquarter of the capital’s main electricity company was also put to the torch. The following day, things got so out of hand that the President decreed a State of Emergency in Santiago and several non-urban areas.

Chaos reigned: to stop looting and arson, the military was called in. By the end of the day, the Head of the National Defense decreed curfew[i], the first such occurrence in over 30 years in Chile. And for those who wondered: yes, the price hike was swiftly reversed.

Two weeks later, however, there are still protests. Yes, the upheaval of the first few days is gone, but people are still venting their anger against the government.

You’re probably prone to ask yourself: “why it must have been a massive price hike to elicit such a reaction, must it not?” The price increase, however, was a meager CLP 30.[ii]How did such an inconsequential price hike turn into revolt?

The straw the broke the camel's back

The subway price hike was, it is fair to say, the straw that broke the camel’s back. The protests were a reflection of the growing impatience and despondency felt by large parts of the Chilean population. While the policies of the last 30 years (i.e. since Chile’s move to democracy) have nurtured growth and improved the quality of life for some, many feel left behind.

When the government understood that this was not merely a demonstration against a price hike but general unrest amongst the population, they acted swiftly. Just a few days after the riots, the President announced a social stimulus package followed by another set of measures the week after to lower the tensions. The stimulus included an immediate increase in pensions and a minimum guaranteed income for low-wage, full-time employees. To further appease the protestors, and to reduce hostilities towards the establishment, higher taxes were imposed for high earners, and lower salaries were levied on public service workers. Since this is not a political protest, the measures received broad political support.

Massive protests in the streets of Santiago
A million people gathered in the streets of Santiago to demand political and social changes. (Credit: NTB/ Claudio Reyes)

The greatest financial cost of it all might be exogenous

People are not yet happy, but the swift action has taken the sting out of the demonstrations. The financial costs to the society as a whole, however, have been huge.

The cost of the social stimulus package is estimated to be USD$ 1.2bn. In addition to the government’s response to the riots are the material costs caused by the riots and the costs to the companies and shops that were affected by the riots.[iii] While the costs from the damages are quantifiable (the costs of the riots are estimated to surpass USD$ 1bn), there is also the added costs of disrupted operations. The National Chamber of Commerce estimates the losses in the retail sector to be approximately USD$ 1.4bn. The losses in the stock markets are another source of cost. MSCI Chile is (as of Nov 7th) down -13% since riots erupted.

The greatest financial cost of it all, however, might be exogenous. Because of the riots, the Asia-Pacific Economic Cooperation (APEC) meeting was canceled. The summit was scheduled to take place in Santiago in mid-November and was widely touted as the arena where China and the US would finally scale back their trade war and sign off on the first phase of what could potentially be a broader trade deal. The cancellation of the summit added a layer of uncertainty in the saga of the trade deal. A new delay and another setback can naturally turn out to be extremely costly.

Even small decisions can have large ramifications

Billions of dollar worth of damages and potentially unquantifiable losses in the (local and global) stock market is hardly an outcome President Piñera could have imagined from the small CLP 30 subway price hike. It is nonetheless a lesson in how even small decisions can have large (and sometimes global) ramifications. It also serves as a stark reminder and warning to more developed nations.

However stable and civilized a country’s recent history might be, populations disenchanted with the growing gap between the haves and have-nots are capable of changing the course of their future if the gap grows wide enough.

[i] Curfews are orders issued by public authorities regulating when citizens are required to return to and stay in their homes.

[ii] This amounts to approximately EUR 0.12 as of November the 7th.

[iii] Out of 1,371 supermarkets in Chile, 325 were looted and 31 were destroyed by fire. (Itaú – Oct 28th)

The DNB Global Emerging Markets Fund does not hold any Chilean stocks in its portfolio. We continue to be overweight Brazil in Latin America due to the positive reform agenda and our expectations of strong growth going forward.

Disclaimer: Nothing contained on this website constitutes investment advice or other advice, nor is anything on this website a recommendation to invest in our Funds, any security, or any other instrument. The funds mentioned may not be available in the markets you represent. The information on this blog is posted solely based on sharing insight to make our readers capable of making their own investment decisions. Should you have any queries about the investment funds or markets referred to on this website, you should contact your financial adviser.

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