SANTIAGO (Reuters) – Chile’s President Sebastian Pinera on Tuesday widened emergency support for middle-class citizens hit by the coronavirus-led economic shutdown to head off legislation that would allow withdrawals from the country’s private pension funds.
Middle-class workers will get a $630 spot payment if their income has dropped at least one-third, regardless of their current employment status. This follows measures announced two weeks ago that included a soft loan, mortgage payment holidays, rent subsidies and beefed-up higher education financing.
The center-right president called the measures a more “responsible” solution to growing poverty caused by business shutdowns and widespread layoffs following lockdowns that began in March.
“Many have felt that the state has not supported them as it should have done,” Pinera said in a speech outside La Moneda presidential palace. “We have to and can change that.”
The announcement came as a bill moves through congress to allow citizens to withdraw 10% of their pensions in Chile’s Pension Fund Administrators (AFP) system, which manages assets of around $200 billion. A similar plan for a 25% drawdown was approved in Peru in April.
The plan, backed by 83% of Chileans in a July Cadem poll, passed an initial lower house vote last week with support from 13 ruling coalition lawmakers. nL1N2EG15Y
Ministers from Pinera’s unpopular administration, already reeling from months of intense social unrest over inequality that started in October, have lined up to condemn the plan as harmful to pensioners and the wider economy.
Economists said local stock and bond markets would feel a short-term impact, with local equity outflows of $560 million to $1.1 billion depending on take-up and whether the funds liquidated more from local or foreign assets.
The AFP system, designed by Pinera’s brother Jose in the 1980s, has been widely imitated but was among the key gripes of protesters last year because of its low payouts.
The law faces a fresh lower house vote on Wednesday before moving to the Senate where it requires a 60% majority. If ruling coalition senators, 44% of the total, support the bill, the president or the constitutional court can veto it.
The government is driving “urgent and necessary” reforms to the pensions system, Pinera said. “The protection of the middle class cannot and should not be at the cost of reducing pension savings, or compromising the future of the country.”
(Reporting by Aislinn Laing; Editing by Richard Chang)