Chile Hurtles Toward Showdown Over Billions in Pension Cash

Chile’s congress gave its final approval to legislation allowing billions of dollars in fresh pension withdrawals, setting up a showdown with President Sebastian Pinera that’s likely to compound political tensions.

The bill is a flashpoint with wide-ranging repercussions in one of Latin America’s richest nations. Chileans have already yanked $37.5 billion from their funds, which have about $210 billion in total assets. The government says the proposal will drain billions of dollars more from the country’s capital market and leave a black hole at the center of the pension system.

Still, the lower house on Friday backed the bill permitting workers to tap as much as 10% of their retirement savings for the third time since the pandemic started. Pinera has already challenged the proposal before the Constitutional Court, which is scheduled to debate the admissibility of his request on Tuesday.

Chile Hurtles Toward Showdown Over Billions in Pension Cash

Pinera’s move, in turn, has provoked the ire of a growing number of opposition legislators who say it endangers national security and hence is grounds for an impeachment motion. While unlikely to prosper, impeachment is nevertheless gaining interest among more moderate lawmakers.

“The pressure may cause the government to change its decision, especially considering that it could affect the government’s coalition in next May’s elections,” BTG Pactual analysts Pablo Cruz and Sebastian Pina wrote in an April 22 note.

‘An Obstacle’

Pinera’s government on Tuesday asked the court to review the proposed withdrawal, arguing that the presidency has prerogative over legislation related to pensions. Hours later, Chileans nationwide protested the move by banging pots and pans, honking horns and chanting against the administration.

Indeed, the measure enjoys ample support among cash-strapped workers hit hard by a resurgent coronavirus. The president is facing pressure to back down from lawmakers across parties, including from within his own coalition.

“President Pinera, I humbly ask you to remove your request before the Constitutional Court,” senate head Yasna Provoste, from the opposition Christian Democrat party, said late on Thursday. “Do not be an obstacle at such complicated times for millions of our fellow countrymen.”

Meanwhile, Itau says outlays from the bill would amount to $14 billion to $19 billion, while JPMorgan estimates outflows at $20 billion. JPMorgan reiterated an underweight recommendation for Chilean bonds on concern a new wave of withdrawals would lead pension funds to sell fixed-income securities.

Read more: Pension Withdrawals Returned to Haunt Bonds: Chile Fixed Income

Pinera met with allies hours after the senate cleared the legislation on Thursday, and has signaled willingness to negotiate on ways to raise revenues. Chile’s government has made it clear that getting help to families in need is top priority, Finance Minister Rodrigo Cerda told reporters earlier in the day.

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