The pandemic is no longer the greatest risk for the Chilean economy, which in the last three decades has been among the most stable in the region. Economists from different political sectors agree that the problem lies in the disorderly exit from the crisis, due to the great impact that successive withdrawals of pension funds had on the financial system. In an election year in which Congress is discussing a fourth withdrawal of 10% of pensions with the opposition of the government of Sebastián Piñera, the Central Bank (autonomous) took unprecedented measures in recent weeks to contain inflation, which reached 4.7% in the last few weeks. last 12 months. The BC raised the benchmark interest rate by 75 basis points, placing it at 1.5%, with the projection that inflation will reach 5.7% by the end of 2021, something never seen by several generations of Chileans.
“The most serious thing is that a considerable part of our problems is self-inflicted. This is alarming,” said the former finance minister of Michelle Bachelet’s second government, economist Rodrigo Valdés. The Chilean economy, which in the past faced crises mainly due to external shocks, is now experiencing its own internal earthquakes and “looks like that of highly volatile emerging countries”, according to Valdés. When the covid-19 crisis erupted in the region in March 2020, Chile was emerging from the social upheavals of October 2019. The political and social crisis dealt a blow to the economy, which then had to endure a second shock with the coronavirus. In these almost two years, the Executive has not been able to regain control, and Congress – where the parties are no longer even in charge – embarked on public policies of questionable quality.
In the context of the pandemic crisis, Parliament approved three withdrawals of pension funds that allowed people to withdraw, on each occasion, up to 10% of the amounts deposited for their pensions. Parliamentarians, both from the opposition and from the right, were trying to give an incentive to the families in the midst of the health crisis, although what some of them – especially the opposition – have on the horizon is the use of system resources for Pension Fund Administrators ( AFPs), based on individual capitalization and pioneer in the world, strongly delegitimized before public opinion because of low pensions.
Withdrawals raised private consumption to unusual levels, which increased by 33% in the second quarter and could continue to grow, as they are still available and ready to spend around 23 billion dollars (121 billion reais) of excess funds on accounts bank and cash. This equates to 9% of GDP.
The enormous liquidity available to households can be seen in the perceptions of the economy. One of the main thermometers in the South American country, a survey by the Center for Public Studies (CEP), shows that 31% of people consider their personal economic situation to be good or very good, the highest rate since 2007. The same is not true. , however, with the perception that citizens have about the country’s economic situation: only 18% think it is good or very good, according to the opinion poll released last Wednesday.
Chile managed to overcome the recession caused by covid-19. According to Central Bank projections, GDP should grow 11.5% this year. Even so, the Government had to give in to pressures from across the political spectrum and expand state aid, such as Emergency Family Income (IFE Universal), extended until the end of 2021. The expansion of the already high fiscal impulse, the trends of The rise in private consumption and the enormous liquidity available to households have been unmistakable signs of greater pressure on prices for the authorities.
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“The economy came with all engines at full power. And, if fiscal policy continues to be expansive until the end of the year, we need to at least reduce the intensity of the acceleration we were bringing,” explained Central Bank President Mario Marcel, a left-wing economist who has been attacked by his own sector due to the measures. The Communist Party, which wants to reach the palace of La Moneda through the deputy of the Frente Amplio Gabriel Boric, accused the autonomous body of being “a disgrace”. But Marcel defended his policies: “There is nothing more inhumane in the economy than inflation.”
Most economists agree that the Chilean economic scenario will become even more complicated if the fourth withdrawal of 10% of pension funds is approved. Economist Ricardo Ffrench-Davis, from the progressive wing of the opposition, expressed on Twitter that “today Chile’s economy is radically different from that of 2020”. “Before, purchasing capacity was lacking. Now it’s over, with the opposition’s great achievement of a much improved IFE. But there remains a huge inequality. Another loot will aggravate it”, said the academic from the University of Chile. The finance minister of the Piñera government, Rodrigo Cerda, also warned: “We can have very relevant impacts. Therefore, you have to be very careful.”
The rise in prices is noted in several elements of the domestic economy, such as the value of used cars, which rises with the passing of the hours. There is a shortage of some household appliances. The same happens with interest rates on long-term loans, such as mortgages, which have increased by two percentage points this year, mainly due to withdrawals from pension funds, as explained on TV by former Central Bank president José de Gregorio.
Meanwhile, Chile is facing substantial changes, such as the drafting of the new Constitution (which should be ready by July 2022) and the legislative and presidential elections, which will bring Chileans to the polls on November 21. The two main candidates, Boric and Sebastián Sichel (right), have different attitudes regarding the withdrawal of retirement funds. While the candidate on the left supports the measure, despite his original position, the government’s is against it. In any case, neither has strong support, according to recent CEP research. Boric is 13% backed; Sichel, 11%; and 65% of Chileans have no candidate or their candidate will not be on the ballot. And all of this just two months away from the elections.
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