Written by María José Gallo, Research Coordinator, and Hugo Santa María, Partner and Chief Economist.
Article published in La República.
What should The Congress of the Republic do in response to an economic crisis as severe as the coronavirus poses? Let the Executive handle the complex and difficult problem.
of the coronavirus and its tremendously negative impact on the economy blurred
the focus of the Congress of the Republic which, in its desire to alleviate the
difficult economic situation of families, could end up doing them more harm. As
a matter of fact, in the 14 days since their installation, they’ve presented 98
draft bills, of which at least 47 are of an economic nature, and only 11 are
related to political reform.
intentions of the members of parliament in wanting to collaborate with the dire
situation that the country is going through is comprehensible, but they could
further complicate the efforts of the government to mitigate its impact on the
economy. There are two reasons for this: on the one hand, the efforts of the
authorities are being duplicated and overlapped, given that the Executive has
already developed measures in this regard. On the other hand, the projects of
Legislative Power contain elements that could generate a significant negative
impact on the functioning of the economy, especially in the long-term situation
One of the most controversial topics has been the proposal to allow the withdrawal of funds saved in the AFP [private pension funds] or some of them (the current Congress had already presented at least 25 bills to this effect). Nevertheless, making a hasty change in the private pension system (SPP) – instead of a debated reform that has the correct economic support – could be not the most adequate thing to do. The best thing would be to look for other alternatives like those that the Executive is developing in order to provide families with liquidity. The coronavirus is temporary, old age isn’t.
the withdrawal of contributions will also affect the value of the funds for
those that decide to leave their savings in the pension system. The
profitability of the AFP is generated by investing these funds in long-term
assets. As a result, if the return of the contributions is requested in a very rushed
manner, the AFP would have to liquidate investments at low prices to return the
money to those that are requesting it, which would negatively affect the
profitability and income of all of those that save in the SPP.
alternative like allowing a gradual and limited withdrawal of contributions to
those that have a very small fund or contributed for a short period is a better
option. But even in that situation, those that take it will materialize their
losses in a market registering historical plunges.What should Congress do? Let the Executive
manage the response to the crisis, and don’t enter into more debates at such a
difficult time. It must be given time and space to propose and implement the
emergency measures. The parliament could prioritize what its main mandate was:
enable the country to get to the next elections with better rules, that way
aspiring to a better political system. Only this way will it be possible to
look toward 2021 with optimism. This is a moment of union, but also of dividing