Recently, we have focused our analysis on the effects that policies emanating from Congress, to a greater extent, and from the executive branch, have had on local assets, inflation, and the exchange rate. From the execution of three withdrawals from pension funds to the recent extension of the IFE, not only has the level of national savings in the economy fallen, but debt, foreign commitments, and the future financial burden of interest payments have also increased. In short, this has led to increases in interest rates, mainly long-term rates, which are not in line with what has happened internationally, while the exchange rate has depreciated idiosyncratically (as the Central Bank likes to call it), which means that the peso is not only worth less against the dollar, but also against most currencies, including emerging ones.

In this regard, the discussion about the fourth withdrawal continues to focus investors' attention, considering the various warnings that have been issued since the first decapitalization by the Central Bank and other actors. However, I get the feeling that not much attention was paid to what the National Budget for 2022 would entail, which, in my opinion, is probably just as important, if not more so, than what could happen with a new withdrawal. Why? Basically because it was going to test the ability of fiscal policy to assume that 2021 was an exceptional year, but that the transfers were temporary and, once the worst of the pandemic was behind us, they would cease. If this did not happen, there was a risk of entering a spiral of public debt growth that would become unsustainable in the medium term, as the country's financial capacity is already quite compromised.

Thus, the main guidelines of the National Budget Bill for 2022, which was recently submitted for legislative processing, were presented. Although we do not yet have the details, the bulk of what was presented seems to us to be committed to fiscal responsibility going forward. According to DIPRES assumptions (which we will learn about next week), the national treasury would reach US$82.135 billion, a real increase of 3.7% over the approved 2021 law. But Nathan, didn't you say that the 2022 budget had to FALL by 20% in real terms to show some commitment to fiscal responsibility? Well, that's right, and that's what happens if we compare the bill with what would be the EXECUTED budget in 2021 (a "little" higher than what was initially approved), showing a decrease of 22.5% compared to the latter. Thus, the projected effective deficit for next year would reach 2.8% of GDP, significantly lower than the 7.3% and 7.1% of 2020 and 2021 (estimated), respectively. Although this is 0.9 pp higher than projected in the latest Public Finance Report, it does meet the structural deficit convergence target for 2022 of 3.8%. Thus, debt would rise to almost 37% of GDP, above the almost 35% at which it would close this year. Will this be the end of the debt increase? No. Even under assumptions of convergence and fiscal responsibility, debt would rise to 38.6% of GDP in 2024, and then begin to decline slightly. However, I insist, this requires compliance with fairly strict criteria on spending growth, which will be up to a new government to decide.

Therefore, at least on paper, the news is encouraging. Now, we will see how the discussion progresses in Congress and whether our lawmakers are capable of legislating with a view to medium- and long-term well-being, and not just what is necessary to win a few votes at the end of the year.

Nathan Pincheira 

Chief Economist at Fynsa