The economic effects of the pandemic have been devastating. During 2020, Chile's GDP fell by 5.8%, the largest decline since the debt crisis. Since March, and after weathering the initial shock of the social unrest, the labor market has been deeply affected. At the height of the pandemic, 1.8 million jobs were lost, and at the time of writing this column, 925,000 Chileans who were willing to work could not find a job.

In this context, and in addition to the measures implemented by the government (which has mobilized resources of more than US$30 billion, of which more than US$8 billion corresponds to fiscal spending), two bills have been discussed and approved that allow members of the pension system to make withdrawals from their funds. These measures have been called "10% withdrawals," but the truth is that they actually allow a majority of members to withdraw much more than 10%. What's more, to date, almost 3 million people have withdrawn 100% of their savings, causing more than 4 million people in Chile to have a zero balance in their pension funds. This, with this system or another, will have a significant impact on the pensions we will be able to pay our senior citizens in a few decades. I insist, with this system or another.

This is how, a year after the adverse effects of COVID-19 began in our country, a bill has been introduced that would allow a third withdrawal. Among the reasons given is to continue to allow the most vulnerable and the middle class to cover their expenses during this period in which mobility is once again severely restricted. I believe that no reader could oppose such a motivation, especially since many may be experiencing a similar situation. However, regardless of the intention, is this the right tool?

The answer one gets from looking at the data is mostly negative. It is true that there may be special cases in which the objective is met (the lack of disaggregation of public data prevents us from performing such an analysis), but for the vast majority of potential beneficiaries, the amounts to be withdrawn would be smaller or there would simply be nothing to withdraw. In terms of age, those without savings are predominantly under 35, due to the short time they have been saving and also because of lower salaries. But there are also older people affected by gaps (particularly women), low salaries, and informal employment. Do these characteristics coincide with our lower-income compatriots? Unfortunately, the answer is yes. Therefore, withdrawals will be directed mainly to people with more savings, higher contribution rates, and better wages.

When evaluating public policies, it is important to separate the motivations from the tools used to achieve them. There is nothing worse than falling in love with the instruments (or using them for other motivations, such as ending the AFP system), because that can lead us to stop solving the original problem. Hopefully, our congressmen will understand this.

Nathan Pincheira 

Chief Economist at Fynsa