Withdrawal of 10%: the divorce between politics and the technical world, ahead of the vote in the Senate

Chile is on the verge of a new withdrawal of funds from the AFPs. The Chamber of Deputies approved on Tuesday the idea of ​​legislating the project and, in light of the statements of pro-government parliamentarians, everything seems to indicate that tomorrow the Senate will ratify that approval.

The issue has been seen by some analysts as a confrontation between the Executive and Legislative branches, and also as a never-before-seen break between the world of politics and that of technicians.

The complaint of the experts is that in this discussion their warnings have been rather ignored.

“People resent technocrats making the decisions. The problem is when politicians have zero respect for technical things, and in the end their decisions hurt what they themselves say ”, said José de Gregorio last July, just when the withdrawal of the first 10% was being discussed.

“If they were a student of mine, I would put a one on it,” said the former head of the BC at that time.

In the prelude to the vote, and beyond the opposition of the Treasury, the vision of the technicians has not changed at all: almost in a transversal way they conclude that this will end up being harmful.

“Compared to the first round of withdrawals, which was approved in early July this year, the second round does not include limitations on withdrawals and no tax is applied to early withdrawals. Although this initiative, if approved, will boost consumption in the short term, it has a high cost since long-term pensions will be seriously damaged, ”the Swiss investment bank, Julius Baer, ​​warned this morning.

The agency Fitch, which recently cut Chile’s note, told Pulso in mid-October that the idea of ​​more pension fund withdrawals “has reduced the predictability of Chile’s high-quality policymaking and exacerbated the problem related to pension rates. replacement of relatively low pensions, which was one of the key areas of public complaint highlighted during the 2019 protests. Regarding the first withdrawal, however, the agency did not express too many objections and even highlighted its effect on consumption.

In the heat of the debate, OECD it was a little more explicit in its position of rejection of this second withdrawal.

“From here it is seen with disbelief, it is not understood why it is done,” said the chief economist and head of the OECD’s private pension unit, Pablo Antolín, in an interview with El Mercurio.

The Central Bank, probably the technical entity with the best reputation in the country, yesterday also addressed the implications that this second withdrawal will have for Chileans.

In the framework of the presentation of the Financial Stability Report, Mario Marcel, pointed out that the long-term risks of the initiative not only have to do with the fact that a part of household savings is being consumed, it is also part of domestic savings , which finances investment, which determines the growth capacity of the economy.

Likewise, he reiterated that the entity will not have the same capacity to face the shocks that the second withdrawal may generate in the markets, as they did with the first and that said actions were made taking into consideration that the first would be a measure by a single time.

In this way, the liquidation of assets that the AFPs would have to carry out would generate an upward impact on interest rates.

About, BCI Studies He pointed out in a report that this initiative “increases the propensity to observe higher levels of nominal rates as a result of the new sale of these assets by AFPs in response to a proposal for a second retirement of pension funds.”

However, he estimated that the impact will be less than expected in the first withdrawal due to the formation of the portfolio and new distribution of affiliates. “With this, we estimate a limit sale of US $ 4.8 billion in local fixed income assets, between Treasury / Central bonds and bank bonds,” said the report.

Thus, they predict that the maximum impact on long-term rates would be close to 40 basis points higher, less than the 60 points estimated in the first withdrawal.

According to the estimates of Santander, an eventual second withdrawal of pension funds could reach US $ 16 billion, versus the US $ 17 billion that, they estimate, would have been approved until the end of July.

That, they indicated, implies that some 1.5 million contributors were left with a zero balance in their accounts, while 1.1 million registered a balance of less than $ 200,000.

“We estimate that a possible second withdrawal, which is currently being discussed in Congress, would imply a reduction in pension savings somewhat less than in the first case, with a maximum amount of around US $ 16 billion. 13% of contributors (1.5 million people) do not have a balance in their accounts, so they could not make the second withdrawal effective ”, they affirmed.

They also pointed out that an additional 21% have less than $ 1 million saved, so that if they use the facility they could also be left without savings.