Economy

Chile and Peru's Congress approve pensions withdrawal

Both Chilean and Peruvian pension funds withdrawal proposal wants to aid citizens amid COVID-19 pandemic

Francisco Sagasti, the new President of Peru. Photo: Peru's Congress Twitter
  • In an overwhelming 87-21 vote, lawmakers greenlighted the proposal over the objections of interim President Francisco Sagasti;
  • In Chile, the second withdrawal was approved by 131 lawmakers in the opposition-dominated lower house of Congress;
  • Peru’s vote comes just weeks after lawmakers approved two similar withdrawals from the country´s parallel, privately-run system.

Chilean lawmakers on Thursday approved a second withdrawal from pension funds for citizens struggling to make ends meet during the coronavirus pandemic. Likewise, Peru’s Congress approved on Wednesday the partial withdrawal of funds from its state-run pension system.

In Peru, an overwhelming 87-21 vote, lawmakers greenlighted the proposal over the objections of interim President Francisco Sagasti, who earlier this week warned he would take the bill to the country’s Constitutional Court.

For Chile, the bill, which now goes to a final Senate vote due to take place on Thursday evening, would allow for another 10% withdrawal from Chile’s privately managed pension funds. It was approved by 131 lawmakers in the opposition-dominated lower house of Congress, with 12 voting against and two abstaining.

READ ALSO: Colombia has drawn $5.4 billion from flexible credit line, IMF says

For Peruvians, Congress’ vote comes just weeks after lawmakers approved two similar withdrawals from the country´s parallel, privately-run system.

Most Peruvians prefer the larger, privately-run pension system, but many state-workers, and some in private business, opt instead for the state-run plan.

The latest bill would allow members of the state-run Office of Pension Normalization (ONP) to draw up to 4,300 soles ($1,192) from the system. The bill, if it becomes law, would drain nearly 16 billion soles (about $4.42 billion) from the state system, according to the Ministry of Economy and Finance.

READ ALSO: Peru’s interim president eyes new debt amid economic, political crises

Sagasti said earlier this week he opposed the bill because of the damage it could do to public coffers, already in dire straits as Peru, the world’s No.2 copper producer, struggles through one of its deepest recessions in decades.

Lawmakers, however, say many of those enrolled in the public system are already in poverty and desperately need of the funds.

For Chile, the bill was introduced by conservative President Sebastian Pinera‘s government two weeks ago to head off a more comprehensive proposal by opposition lawmakers and won early approval in the Senate last week.

But it has been significantly amended in congressional committees to remove a cap on who was eligible to benefit and the obligation that the money be repaid, effectively removing the differences between the bills.

The government has argued against any withdrawals, saying they would reduce already low pension payouts and that citizens should rely on the government’s emergency coronavirus measures instead, which include spot payments and rent subsidies.

READ ALSO: Chile’s economy closer to growth after months of contraction

A first move on pensions was approved, however, with cross-party support in July, with its impact on markets more limited than originally feared and giving the economy a bounce as people spent some of the $17.4 billion withdrawn.

The government also opposed a second withdrawal floated by the opposition. But after it became apparent that members of the ruling Chile Vamos coalition would help the initiative over the line again, the government was forced to do a U-turn and introduced its own bill.

Those backing the pension withdrawals argue the state provisions do not go far enough. Chile’s unemployment figures remain near a decade-long high. A poll by Ipsos released on Thursday found that 53% of respondents reported a drop in their incomes, while a third said their debt levels had increased.

READ ALSO: Brazil’s jobless rate rises and Chile’s unemployment eases to 11.6%

Economic activity fell by 1.2% in October, disappointing the market, which had expected some revival by then.

The government warned this week of a possible second spike of the virus to come in January, ahead of the arrival of a vaccine.

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