Fifth AFP withdrawal in Chile: What is missing for the law to have pensions to be approved?

With the sanitary restrictions in full retreat at the national level and a historical inflation of 9.4% in the last 12 months, the Congress of Chili is involved for the fifth time in the discussion of a new early withdrawal of pension funds, a measure designed in principle to cushion the economic blow of the pandemic.

To date there are two projects on the table: one that allows the universal extraction of 10% of the funds, and another alternative presented by the Government that limits the use of resources to specific issues. The first was rejected yesterday in the legislative committee, the second approved, both awaiting debate in plenary.

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Here are the keys that explain an initiative that has great popular support -66.5%, according to the Pulso Ciudadano survey-, the proposal presented by the Executive and a complex economic scenario that can further compromise the pocket of Chileans with a cost of living that has not stopped rising in recent two years.

TWO PROJECTS FOR A FIFTH RETREAT

“The argument is made in favor of retirement because the cost of living is higher. But that increase comes from previous withdrawals. In the next round, we are going to have even more inflation, they are going to want to withdraw funds again to deal with this situation”, the Minister of Finance, Mario Marcel, said a few days ago.

Despite the government’s refusal to support the original project, from La Moneda there have been problems to reconcile all the ruling parliamentarians, for which a strategy of “vote dispersion” was sought by surprisingly sending a new project, the official told Efe. Senior Economist at the Economic Context Observatory of Diego Portales University, Juan Ortiz.

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Unlike the original proposal, the one devised by the Government limits the use of withdrawn resources to the payment of alimony, balance of debts in basic services, health and mortgage loans for the first home.

“The main knot is the legislative negotiation process. It is not yet known if they have the necessary votes to be able to implement it because there is a part of the ruling party that may not be in favor “Ortiz stressed.

TAKE CARE OF INFLATION

Last December the possibility of a fourth withdrawal was discussed, but it was rejected due to the possible consequences it could have on the economy by increasing the amount of money in circulation.

The original project for the fifth withdrawal, experts say, would also generate a new “liquidity shock” in the economy, projecting greater internal spending in a context of logistical problems that would lead to pressure on prices.

“If this withdrawal is like the previous ones, we are going to have an unbalanced macroeconomic situation, and a government that has complex fiscal accounts and has problems managing its program”Ortiz emphasized.

“We are talking about more than 15,000 million dollarsgenerating a negative impact because the administrators would have to liquidate assets to meet the payment, “the director of the Business School of the Universidad Mayor, Francisco Castañeda, told Efe.

“With the alternative, a much smaller financial impact is sought, it limits the effects on financial markets and inflation. In political terms, it is a way to look good with its most radical electorate”he added.

THE POSITION OF THE CENTRAL BANK

Although the government project managed to contain the advance of the fifth retreat original in the Constitution Commission of the Chamber of Deputies, still raises concerns in the economic world.

The president of the Central Bank, Rosanna Costa, while acknowledging that it is a “more limited” project, criticized the document as “it is a withdrawal and, as such, ‘jibarizes’ the long-term capital market.”

“These capitals (pension funds) have given depth and stability to the capital market, which in the face of certain crises normally move in the direction of stabilizing it. If they are reduced over time, it has an adverse structural effect”pointed out the economist.

THE THREE PREVIOUS RETREATS

Since the arrival of covid-19, three other withdrawals of 10% of the fund have been approveds, which so far has involved a disbursement of more than 55,000 million dollars for entities that manage this money, the Pension Fund Administrators (AFP) and have benefited 95% of the 11 million affiliates.

Chile’s pension system, established during the dictatorship of Augusto Pinochet (1973-1990), is a pioneer in individual capitalization and requires each worker to contribute 10% of their monthly salary to a fund managed by private companies, which make up the backbone of the Chilean financial market.

In recent years, it has been widely criticized for the meager pensions it provides, with half of Chilean taxpayers receiving less than 215,000 pesos ($280) a month in pension, according to data from Fundación Sol.

Source: Elcomercio

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