Chile faces dilemma of a new early pensions withdrawal

RIO DE JANEIRO, BRAZIL – Chile is once again facing a possible early withdrawal of pension funds, a very popular mechanism that helped tackle the pandemic, but now, with the highest monthly inflation in 30 years in March, it takes away the dream of homeownership for thousands of people, it was reported on April 12.

With the country plunged into an unprecedented inflationary spiral for younger Chileans, congress members from left to right promoted a new early withdrawal of private pension funds after the three approved since mid-2020.

Until 2021, these withdrawals injected almost 50 billion dollars into the economy. Added to the state aid of US$3 billion per month provided by the government of Sebastián Piñera (2014-2018), they boosted consumption and put upward pressure on prices.

In an attempt to contain inflation, which in March reached 1.9%, its highest monthly variation in almost 30 years, the Central Bank raised interest rates to increase the cost of credit in a country with a high proportion of the population indebted in education, health and also in mortgages, which for 20 years were relatively easy to access for the middle class with formal employment.

If prices continue to rise, the Central Bank will deepen its aggressive policy of increasing the interest rate, currently at 7%, the highest in 13 years. Consequently, the interest on mortgage loans could double, according to the calculations of the monetary authorities.

The Unidad de Fomento (UF) is the financial unit in which the housing price is measured, which is readjusted monthly according to inflation. With this tool, Chile managed for decades to make housing prices and income compatible over time, with an annual inflation rate of around 3 percent.

If a new withdrawal is approved, “there would be an impact of the interest rate on the capital market, (…) mainly affecting mortgage loans,” Carolina Molinare, an economist and researcher at the Diego Portales University, explained. This scenario affects “especially lower-income households”, she added.

More: Brazil news in English, every day from The Rio Times.

This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error