Protests in Chile / Photo: Shutterstock.com

In the midst of violent protests in Chile last November, New York-based Shearman & Sterling partner Alexandro Padrés was closing a refinancing deal for a power generation company in the Andean nation. 

His counterparts in Chile worked from home to make the deal happen, avoiding the chaos outside as thousands took to the streets. Protesters torched buildings, trashed metro stations in the Chilean capital of Santiago and looted grocery stores. 

The government tallied damages at $1.5 billion, while efforts to repress the protests led to at least 20 deaths and 2,500 people injured. Smaller-scale protests have since been a near-daily occurrence. 

Chile has long been seen as a pillar of economic stability and discipline in the region. The country has the highest per-capita income in Latin America — $23,000 — and together with Brazil and Mexico it forms a linchpin for corporate legal work in the region. 

The discontent in Chile began over a hike in subway fares and soon spread to include meager pensions and inadequate health care. The overarching complaint has been about income inequality and perceptions that quality of life is not improving for the average resident. These grievances are much like those from the middle classes in such countries as France and the U.K. 

"There's a present and pressing need to address the social situation in Chile," Padrés says. Yet, investors haven't turned negative on the country, he says; rather, they view the recent unrest as a socially important setback that could result in mild delays for deals and investments in an otherwise sound place to do business.

To address grievances, the government is rewriting a constitution drafted during the right-wing dictatorship of Augusto Pinochet and is improving the paltry pension payments that have been a chief complaint of protesters.

Social instability tends to erode economic activity, with economists predicting figures will show there was a contraction in Chile during the final quarter of 2019. Still, the longer-term impact on dealmaking remains unclear. 

A survey conducted by Deloitte Chile following the start of the unrest found that 23% of respondents believe mergers and acquisitions activity in the country will decelerate this year, up from 14% before the protests.

Todd Crider, head of the Latin America practice at Simpson Thacher & Bartlett, says the constitutional reforms in Chile have the potential to be "enormously meaningful." After all, Chile has been a star economic performer in the region since the country adopted pro-business, small government policies during the 1974-1990 rule of Pinochet.

"There is a question mark over prospects for deals," Crider says. "At the same time it's an economy that has a lot of residual strength."

The need to address social issues could mean less government focus on infrastructure in the near term, but multilateral institutions and private investors may well pick up the slack.

The Chilean economy is highly dependent, for example, on copper mining. That requires ancillary services ranging from power to water that translate into steady work for project finance lawyers. The country can hardly afford to do an about-face on infrastructure financing when copper accounts for roughly 10% of its $300 billion gross domestic product.

The Institute of International Finance notes that key sectors such as mining and agriculture have been largely unaffected by the turmoil and are set to recover this year following recent weakness. Pending greater social stability, the IIF predicts that the Chilean economy will expand 2.2% in 2020.

Raquel Bierzwinsky, a partner at Norton Rose Fulbright, believes dealmaking will chug along in Chile. "I don't think the protests are going to derail the implementation of more projects in the energy sector, especially if these projects can help with demand for energy and reduce prices," she says.