Since September 2020 and in the middle of the coronavirus pandemic, Congress approved three withdrawals of up to 10% of the funds accumulated in individual accounts in private pension fund managers, entities criticized by Chileans for paying low pensions. The workers took out a total of 50,000 million dollars, according to the Superintendency of Pensions.
“All economists found that a retirement measure was absolutely undesirable, because it is a withdrawal of the silver saved for when one is old. It’s like pinching yourself, ”laments economist Víctor Salas, from the University of Santiago. There are already five million people, out of 11 million members, who were left without funds in these administrators established 40 years ago under the dictatorship of Augusto Pinochet (1973-1990).
A good part of the current economic expansion is due to the sharp increase in consumption, thanks to withdrawals and government aid to families, which in the second semester reached 16 of the 19 million inhabitants. The outrage over the low pensions was one of the causes of the violent social outbreak of 2019, a mobilization that has been channeled into a constituent process. In Chile there is a clamor to change the pension system, but for now they have not established a model to replace it.
The fourth withdrawal is being discussed in Congress after the Central Bank raised the reference interest rate to contain the inflation that threatens to exceed the annual goal of 4%. The debate also comes amid warnings that the economy is at risk of “overheating” due to excess liquidity, due to withdrawals and aid due to the pandemic, which now amount to 3 billion dollars a month.
“There is an outline of overheating that can be seen in the inflation figures, which are on the rise, but above all there is a potential for overheating that is difficult to estimate and that is important,” explains economist Guillermo Larraín, former Superintendent of Pensions and former Superintendent of Securities and Insurance.
“There is no macroeconomic reason to proceed to the fourth withdrawal. There is also no pension reason. What is guiding this is a rather political reason ”, adds the doctor in Economics and professor at the University of Chile.
The conservative government of Sebastián Piñera has opposed the withdrawals, but has not managed to prevent them even with the congressmen from his coalition.
In an election year, it is unpopular for a parliamentarian seeking reelection to vote against releasing funds. The presidential and legislative elections will be on November 21.
After the scourge of the pandemic, withdrawals and aid favored an early reactivation and the Chilean economy would grow this year to 11.5% over 2020, according to the Central Bank.
A good part of the funds withdrawn was placed in bank deposits, but “if people decide to spend that money, then indeed there may be a problem of excessive demand,” warns Larraín. “If this withdrawal is approved, it will be between 12,000 and 16,000 million dollars and that means an increase in demand,” which will lead to new rate hikes, says Salas.