Changes in Chile
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Felipe Larraín fondly remembers a time when Chile gained a lot of money. “I was the finance minister in 2012 when we invested more than $ 2bn in corporations for all the good,” he told the Financial Times. “We paid only 55 points for every U.S. Treasure.”
But almost a decade later, South America does not look “like a beach” in the economy, as stated by President Sebastián Piñera..
Yields over 10-year local governments have risen from 2% in May 2020 to more than 5.5% this month, with reimbursements for more than seven years.
“The main reason for the rise in yields has been the political turmoil,” said Esteban Jadresic, chief economist and global economist at Moneda Asset Management in Santiago.
Chile is also affected by rising global prices, driven by food and energy. Customer prices rose 4.8% year-on-year to August, more than 3% of the central bank. The central bank has raised its points twice this year, recently by 75 points (0.75% point) to 1.5% on August 31. It has promised to raise the issue further at a much stronger rate than its previous directives said.
“What he once said he would do in two years, now he says he will do in six months,” said Kieran Curtis, a market loan manager coming to Aberdeen Standard Investments in London. That, he said, sent a harvest this month.
A sudden hawkish shift in financial thinking comes as a result of increasing pressures. Just a few days after Piñera, a billionaire businessman, made use of an interesting description of his country in October 2019 interview with FT, rising ticket prices on the Santiago metro have led to a nationwide explosion of protests that lasted months.
Protests filled the streets demanding Piñera’s resignation and protests against expensive jobs, government jobs, inadequate pensions and unequal treatment. The controversy only escalated after the President approved a dramatic increase in public interest rates and a run-off election to re-regulate the Chilean market, which began during the reign of dictator General Augusto Pinochet.
Stress on the streets has prompted religious rallies to take the place of the majority, including permission to withdraw pensions even though they have been warned by economists about how this could affect major local markets and exacerbate the pension crisis.
The Chilean parliament continues to debate the fourth round of pensions, with votes expected next week.
However Larraín, who served two positions as finance minister and is now a professor of economics at the Catholic University of Chile, said the fourth dismissal could be “worse for the people, with higher prices, higher interest rates and lower pensions, and greater damage to corporate markets. there. ”He added that it had no financial implications.
“The government’s decision to invest means there is no reason to cut back on the fourth,” he said. “It’s too bad and ridiculous, except that it’s popular and we’re in the election season.”
The exemptions forced Chilean pensioners to lower their investment in the market to aid in the redemption, which increases the pressure on yields. The prospect of relegation completely changed the course of events. “The market is worried that [the pension funds] we will have to sell most of their goods, ”said Curtis.
Chile has elected a new president and convenes a general meeting on November 21. Research shows that Gabriel Boric, a 35-year-old academic leader for the future, is leading.
Anyone who wins the election is expected to face challenges in order to increase economic growth and increase Chile’s growth, which the left-wing legislature also advocates.
Many years of economic prosperity have left Chile with relatively low Latin American debt in GDP, as well as low levels of public health and education and pensions that do not provide retirement opportunities for many. This provides more opportunities for the next government to improve funding.
“The question is whether it should be done with caution,” said Alberto Ramos of Goldman Sachs in New York. “He is slowly abandoning the kind of ideology that has made Chile a child of money.”
Igal Magendzo, an economist at Pacifico Research in Santiago, says it is becoming increasingly difficult for investors to sell risk to Chile due to political instability. “There are ideas to wait for,” he said.
“There are doubts about the outcome [of a fourth pension fund withdrawal] The economic downturn, based on a commitment to Chilean institutions, financial stability and financial accountability, “Magendzo said.
“Chile’s economic potential is huge,” he said. “For many years it has been very difficult to get a license regardless of what the government has done. But that [financial space] there are the next five years, not the next ten. ”