The perfect storm of the Chilean economy



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The pandemic is no longer the greatest risk for the Chilean economy, which over the past three decades has been one of the most stable in the region. Economists from different political sectors agree that the problem lies in a disorderly exit from the crisis, due to the great impact of consecutive withdrawals from pension funds on the financial system. In an election year where Congress is discussing a fourth 10% withdrawal from retirement savings, with opposition from Sebastián Piñera’s government, the (Autonomous) Central Bank has taken unprecedented measures in recent weeks to curb the inflation, which has hit 4.7% over the past 12 months. The issuing institute determined a rate hike of 75 basis points, the highest in 23 years, and placed it at 1.5%, with the projection that inflation will climb to 5.7% by the next year. end of 2021, unheard of for several generations of Chileans.

“The most serious thing that happens is that a substantial part of our problems are self-inflicted. It is alarming â€, recalled the former Minister of Finance of the second government of Michelle Bachelet, the economist Rodrigo Valdés. The Chilean economy, which in the past experienced a crisis mainly due to shocks external, this time is experiencing its own internal earthquakes and “looks like emerging countries with high volatility”, according to Valdés. When the coronavirus crisis erupted in the region in March 2020, Chile was emerging from the social unrest of October 2019. The political and social crisis struck a blow to the economy, which then had to withstand a second upheaval due to the pandemic. In nearly two years, the Executive has not been able to regain control and Congress – where parties no longer even rule – has embarked on public policies of questionable quality.

As part of the covid-19 crisis, Parliament pushed for three withdrawals from pension funds that made it possible to withdraw up to 10% of retirement savings each time. Both opposition and right-wing parliamentarians have sought to give families a boost in the context of the health crisis, even if some parliamentarians – especially the opposition – have on the horizon the depth of the system of Administrators of Social Security Funds, (AFP’s), based on individual capitalization and pioneer in the world, strongly delegitimized in the face of public opinion because of low pensions. Withdrawals have taken private consumption to all-time highs, which rose 33% in the second quarter and may continue to grow as there is still some $ 23 billion in excess funds available and ready to be spent on checking accounts, current accounts and cash. . This represents 9% of the GDP.

The enormous liquidity available to households is evident in perceptions of the economy. One of the leading thermometers in the South American country, the Center for Public Studies (CEP) survey shows that 31% of people consider their personal economic situation to be good or very good, the highest index since 2007 . That’s not the case. The same is true, however, in the perception that citizens have of the country’s economic situation, where only 18% consider it good or very good, according to the opinion poll published last Wednesday.

Chile had the capacity to weather the recession implied by the Covid-19 crisis, so that GDP growth in 2021 would reach 11.5%, according to the projections of the Central Bank. However, the government had to give in to pressures from all political circles and expand state aid, such as Emergency Family Income (IFE Universal) which was extended until the end of 2021. The expansion of the already high fiscal impetus, trends Rising private consumption and the enormous liquidity available to households were unequivocal signs of increased price pressure for the authorities.

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“The economy has come with all its engines to the maximum and if fiscal policy is going to continue to be expansive until the end of the year, at least we need to reduce the intensity of the acceleration that we have brought”, explained Central Bank President Mario Marcel, a left-wing economist who has been attacked by his own industry for the measures. From the Communist Party, which aspires to reach La Moneda at the hands of the Front broad deputy Gabriel Boric, they accused the autonomous body of being “a scourge”. But Marcel defended his policy: “There is nothing more inhuman in economics than inflation”.

Much of economists agreed that the economic scenario would become even more complicated for Chile if the fourth 10% withdrawal from pension funds took place. Economist Ricardo Ffrench-Davis, from the progressive wing of the opposition, expressed on Twitter that “today the Chilean economy is radically different from that of 2020”. “Before, there was a lack of purchasing power. Now he remains with the great realization of the opposition of a much improved IFE. But we end up with a huge inequality. Another withdrawal worsens it â€, assured the academic of the University of Chile. The Minister of Finance of the Piñera government, Rodrigo Cerda, also warned: “We can have very significant impacts, so we have to be very careful. “

The rise in prices is seen in various parts of the national economy, such as the value of used cars, which increase with the hours. There is a shortage of some devices. The same is true of interest rates on long loans, such as mortgage loans, which have risen by two percentage points this year largely thanks to withdrawals from retirement savings, as explained on television. the former president of the Central Bank, José de Gregorio.

In the meantime, Chile faces substantial changes, such as the drafting of the new Constitution, which should be ready by July 2022 at the latest. And an intense electoral train, which will again lead Chileans to the polls on November 21, to the legislative and presidential. The two main candidates, Boric and Sebastián Sichel, on the right, had different positions regarding the new withdrawal of pension funds. While the left-wing candidate supports him, despite his original position, the ruling party opposes it. In any case, neither has overwhelming support, according to the recent CEP poll. While Boric reaches 13% of support and Sichel 11%, 65% of Chileans do not have a candidate or their candidate will not be on the polls. And all this, just two months before the elections.

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Disclaimer: This article is generated from the feed and is not edited by our team.


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