Central Bank: taking out another 10% would impact markets due to the expectation of more money transfers

Even the Constitutional Commission of the Chamber of Deputies was attended this Wednesday by the Minister of Finance, Ignacio Briones; and the president of the Central Bank, Mario Marcel, to expose on the second withdrawal of 10%.

Marcel started by recalling that in the first withdrawal of 10%, the same parliamentarians emphasized that “it was an exceptional measure and for the only time. When you make a second withdrawal, of course you can no longer ensure that. So, that no longer refers only to a second withdrawal, but to the probability of a third, fourth or fifth withdrawal. This has impacts on the expectations of the different agents in terms of how they begin to project these decisions into the future. And, of course, there is an issue of what credibility is ultimately assigned to a text that is written in the Constitution, as a transitory article as a single measure ”.

Second, he said that today the context is also different, because the first withdrawal occurred at the worst economic moment of the pandemic. Likewise, he said that the first withdrawal would have an impact on GDP of 1.2% during 2020 and more or less half for 2021, but with a second withdrawal of 10% the effect would be less, since the beneficiaries would be older people. socioeconomic level.

He said that “it is highly probable that the proportion of funds that are allocated to uses that stimulate domestic demand will decrease, with a more limited effect on activity. Likewise, it increases the potentially disruptive effect on financial markets, by requiring the liquidation of assets with a greater local presence, exacerbated by the expectation of additional withdrawals. With this, the capacity of the CB and the regulators to mitigate these effects will be considerably more limited ”. All this, without even considering the impacts of a measure of this type on the viability of a pension reform.

Regarding the impact on the markets, Marcel pointed out that the effect was less with the first withdrawal, but that happened thanks to the fact that the BC itself and regulators took action on the matter, and because the AFPs mainly sold assets abroad.

For his part, Briones pointed out that with a second withdrawal the fiscal cost would be US $ 4,000 million.

In addition, the minister warned that the first withdrawal represents 2 contribution points, and the second would represent 1.8 points, therefore, considering the 6% additional contribution of the reform, it would mean that “practically two thirds of those 6 points, they disappear with a second withdrawal ”.