Legislative Populism and Economic Projections Raise Concerns

The House of Representatives has overwhelmingly approved a second 10 percent pension fund withdrawal. As a parliamentary initiative, led by Partido Humanista representative Pamela Jiles, the project didn’t require a high quorum. This was also made possible through the support of the ruling coalition – unthinkable just a few months ago.

Not only did the government arrive late to the debate on the second 10 percent pension fund withdrawal, it also could not offer alternatives to sway representatives and the rest of Congress.

Finance Minister Ignacio Briones threatened that if the project went through, the government would slow down pension reform. He also said the withdrawal would leave four million contributors without a peso in their retirement fund. Then he tried to convince governing coalition Chile Vamos that he would present an alternative to allow terminally ill people to withdraw their savings. Next, Briones suggested that those who earn more than CLP$2.5 million (US$3,300) per month would have to pay taxes on their withdrawals and that everybody would have to repay the “auto loan” the withdrawal would represent before retirement.

But Chile Vamos would have none of it.

It remains to be seen – if the bill passes in the Senate – if the government will carry out its latest threat: turn to the Constitutional Court for a veto. Government palace La Moneda entered a “constitutional reserve” a few weeks ago, but it is difficult to use this tool, considering sky-high (80%) public support for the withdrawal.

Also read:

Chilean House Approves Second Pension Withdrawal

The Problem in Congress

Beyond the need for the funds, the process so far in Congress has created concerns. Above all, the poor and light discussion of arguments. During the debate, little to nothing was said about the medium and long-term impact, nor was it possible to identify areas the state had really failed to support during the pandemic.

This must be one of the shallowest projects in years, in contrast to the importance and implications it carries. Incidentally, it shows that populism is being forcefully installed in our politics, just as several elections are slated for next year. And of course, the government will certainly avoid creating more problems for itself, given that public support oscillates between 13 percent and 16 percent. Also, the first withdrawal injected CLP$14 billion into the weakened economy.

The government’s delay in presenting a project, which would provide relief to those who have suffered the most from the crisis that started with the social uprising a year ago, heightened criticism of the state’s capacity to cushion economic impacts.

One day after approval, authorities came at least out with a transversal agreement on the 2021 budget, which also provides resources for a new emergency fund to confront a second coronavirus wave expected to arrive late December/early January and to worsen toward April.

Rising Tides – Hopefully

The economy is showing signs of a mild recovery. The Central Bank’s economic activity index (IMACEC) for October is estimated to reach 0.5 percent, after contractions of up to 14.2 percent were registered since March. Of course, the index for October, November, and December will measure against low figures, considering the contraction during the social outbreak at the end of last year.

The state will certainly face fiscal restrictions during 2021, with a lower GDP than projected (3.5 percent to 4.5 percent). And the possibility of a major second coronavirus wave lingers, like the one in Europe right now. Even if the Pfizer or Sputnik 5 vaccines reached the market soon, they will not be massively available for up to five months.

To this adds the burden of pension fund deterioration for millions of Chileans, a situation that will worsen in the coming years and that will represent a problem for any government. This development will require an in-depth discussion in parliament that will also touch on the constituent process that will define the pension system our country needs.

And of course, let’s hope that populism does not spread like an unstoppable virus in Chile.

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