Chilean President Sebastian Pinera on Friday signed into law a plan to allow citizens to withdraw 10% of their pensions savings as people queued at the administrator’s offices in Santiago eager for relief from the economic effects of the coronavirus.
FILE PHOTO: Chile's President Sebastian Pinera delivers a speech in Santiago, Chile January 29, 2020. REUTERS/Edgard Garrido/File PhotoThe law, approved by two-thirds of legislators on Thursday, was created to give quick cash to millions of Chileans who lost jobs because of the economic shutdown aimed at slowing the spread of the virus.
The Office of the President said Pinera had signed the bill late on Friday but made no comment on its content.
Pinera`s centre-right government had opposed the emergency relief measure, saying it would support citizens through the public purse instead. It has also warned about the longer-term impact on the profitability and already low average payouts of pensions.
Despite those pleas, queues formed on Friday outside the offices of Pension Fund Administrators (AFP), with opinion polls indicating nearly nine out of every 10 Chilean planned to tap their funds. Most said they would use the money to pay for basic goods and services, but others said they planned to invest the money elsewhere.
Economists say that Chile’s battered economy could get a short-term boost, with a total estimated $16.65 billion potentially being unleashed for consumption, according to think tank Ciedess.
However they also warn of the negative impact on the pensions funds, which hold assets of more than $200 billion, which may liquidate local stocks and bond holdings to pay out to savers.
As of December 2019, the AFPs had just over half of their investments in Chile, including 33% in Treasury bonds.
Chile’s Congress is weighing a quantitative easing bill that would allow the Central Bank to buy Treasury bonds on the secondary market, potentially cushioning any funds sell-off.
In Peru, where congress approved a plan to let citizens draw down 25% of their pensions, fewer people than anticipated took advantage of the measure, and the impact on its economy was cauterized by the funds liquidating largely foreign assets, analysts say.