Coronavirus in Chile ECONOMY

Plan to Support Chilean Middle Class Faces Harsh Criticism

SANTIAGO – President Sebastián Piñera presented on Sunday, July 5, a plan to help the Chilean middle class through the current economic crisis. With a package worth USD$1.5 billion, this group can obtain benefits for their rent and mortgages. Opposition sectors condemn the plan, saying it is likely to increase the already high amounts of debt Chilean middle class struggles with.

President Sebastián Piñera presented a package on Sunday, July 5, stating that it “will mean aid and relief for more than a million families in Chile. The USD$1.5-billion package consists of four programs that middle-class Chileans can choose during the economic crisis the country is facing.

The first program is what the State calls “Covid soft loans.” The loans, administered by the state, have a zero-interest rate, and are meant to support a group of 600,000 entrepreneurs and unemployed people in Chile. The credits will cover up to 70 percent of lost income, will be granted for a period of four months, with a total maximum of USD$3,200. After a grace period of one year, the loans must, depending on the recovered income, be paid back in three years.

Chileans benefiting from the plan can also split their mortgage dividends through an agreement with the bank and with the State as guarantor. According to this second program in the emergency package, first-time mortgage borrowers who have lost a significant amount of income and who are not eligible for other government support programs can defer payment of their mortgages for up to six months.

Some lower-middle-class families in Chile can also benefit from a rent subsidy program – specifically, those who have lost 30 percent or more of their income and who were not eligible for the Emergency Family Income  program which provided families with a monthly bonus for three months. This third program in the package, meant to support approximately 50,000 families, will consist of a monthly payment of USD$180 for families with rent under USD$500 per month.

The fourth part of the package focuses on students. State credit programs will be renewed to benefit over 760,000 students. Students can opt for the new program, with a preferential rate of 2 percent.

Also read:

Government Announces Emergency Aid Plan for Vulnerable Families

“More Burden on Back of Chilean Middle Class”

Opposition sectors decry the support package. They say it will increase by at least 70 percent the debt load on Chile’s middle-class families. President of the Party for Democracy Heraldo Muñoz said that “the solution should not be the indebtedness of an already over-indebted middle class.”

The president of Social Convergence Gael Yeomans said that “it is very unusual that the solution for the majority of Chile’s indebted people is more debt. The two most important pillars of this package with supposed ‘protection for the middle class’ are a loan and the extension of student credit, which will put more burden on the backs of Chilean families.”

Earlier emergency packages from the government were mostly aimed at lower-income families – those with a monthly income under USD$490. Those families constitute 34 percent of all Chilean households, while middle-class families in Chile, many of whom saw their standards of living rise in the last two decades upon a system of credit, make up more than half of the Chilean population. In fact, 70 percent of these families already live with debt they acquired on their climb up the socioeconomic ladder. With the large contraction of the Chilean economy during the health crisis, many of these families are now vulnerable and could easily fall back into poverty.

It is a scenario that according to the World Bank does not only affect Chile. In a prediction last week, it said that 53 million Latin Americans will see their incomes fall below the regional poverty line of USD$5.50 per day in 2020, while the IMF estimated economies in Latin America and the Caribbean will contract by 9.4 percent in 2020.

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