Written by María José Gallo, Research Coordinator, and Hugo Santa María, Partner and Chief Economist.
Article published in La República.
The crisis 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.
The good 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 of families.
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.
Moreover, 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.
An 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 tasks.