Inflation, pensions and inequality: the economic challenges of the future president of Chile

Skyrocketing inflation, a decapitalized pension system and exacerbated inequality after the pandemic: the next president of Chile He will lead a country that ceased to be the “oasis” that it was before October 2019, when the most serious protests erupted since the dictatorship.

The seven candidates who will compete on November 21 to reach La Moneda (presidential headquarters) cover a very broad political spectrum, which It ranges from an extreme right that seeks to minimize the role of the state and cut taxes, to an extreme left that wants to expropriate the mining companies, going through more moderate positions that pursue a welfare state.

The polls, with little prestige after the last electoral appointments, predict that neither will win in the first round and that the two most likely to win in the December 19 ballot are Gabriel Boric, of the leftist Frente Amplio, and Jose Antonio Kast, of the far-right Republican Party.

The experts, however, ask not to defenestrate so quickly Yasna Provoste (center) is a Sebastián Sichel (ruling right), since they are the most uncertain elections in Chilean democracy and there are still 50% undecided.

“It will be a very difficult 2022, with a projected growth of only 2% per year and in a context of decrease in fiscal transfers and withdrawal of monetary stimuli, which implies higher interest rates”Francisco Castañeda, director of the Business School at the Universidad Mayor, explained to Efe.

In parallel, a convention made up mostly of progressive citizens is working hard to draft a new Constitution before July that enshrines the solidarity of the State and replaces the current one, inherited from the dictatorship and of a neoliberal court.

Alejandro Micco, an economist at the University of Chile and former Undersecretary of Finance, told Efe that the great challenge is to “maintain certainty regarding the future of the country’s economic policy” so that there are no effects on “country risk or rates.”

In the same vein, the president of the Chilean great business community, Juan Sutil, spoke last week: “Investors pause their decisions until they are certain. And this is exactly what we have seen in recent months ”.

“INCLUSIVE REACTIVATION”

The pandemic caused a 5.8% drop in GDP in 2020, the biggest drop in four decades, and a loss of nearly two million jobs.

The recovery, however, is being faster than expected: in the second quarter of 2021, GDP registered an annual growth of 18.1%, the largest jump since there are records, and the unemployment rate fell in September 8.4%.

The Central Bank of Chile expects a GDP growth of between 10.5% and 11.5% for this year and, for 2022, of up to 2.5%.

For Recaredo Gálvez, of the progressive think-tank Fundación Sol, “we must promote a reactivation that is not precarious, that is the great challenge for the Government and for the Parliament”, because in addition to being president, Chileans will choose deputies and the half of the senators.

Copper, of which Chile is the world’s largest producer, has largely driven this recovery and will continue to do so, although we must be “vigilant” about the slowdown in the Chinese economy, warned Gálvez.

The red metal reached its maximum price of $ 4.86 per pound on May 10, even surpassing the records of the “super cycle” of 2011, and the Chilean Copper Commission (Cochilco) estimates that it will close 2021 with an average value of 4 , 2 dollars a pound.

The prestigious economist Ricardo Ffrench Davis, National Prize for Humanities and Social Sciences, assured Efe that Chile must tackle the endemic inequality that caused the wave of protests in 2019, because only then will there be “certainty and social peace.”

In terms of inequality, he said, “we have regressed in these two years, with obstacles such as having lost almost 50,000 million dollars of pension savings.”

“It’s money has been liberalized: critics of neoliberalism are doing neoliberalism when they say they want their money to handle it themselves”Added Ffrench Davis, who proposed increasing the tax burden in 2022 and taxing only once those who gained the most in the crisis.

Chile, a pioneer in Latin America in individual capitalization, has allowed three early withdrawals of 10% of the funds, paying more than 48,000 million dollars.

Most candidates agree that the system offers very low pensions and that it requires a change.

INFLATION, HEADACHE

Inflation, experts agree, could be one of the next president’s main headaches.

The greater liquidity due to social benefits (more than 35,000 million dollars) and pension withdrawals have taken it to historical records: the Consumer Price Index (CPI) reached 13.1% in October, its highest level annual in more than 13 years.

The Central Bank, which estimates that inflation could close the year close to 6%, aggressively raised the benchmark interest rate to 2.75% in October, accelerating the withdrawal of the monetary stimulus that had begun in July.

For Castañeda, inflation is “dangerous”, but the upward trend is also being seen in other parts of the world due to “energy shortages, disruption in global supply chains, negative effects on agriculture or financial and economic bubbles. real estate ”.

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