The Chile Economy, Social Crisis and Virus Impact

National Crisis, Emergencies, and Natural Disasters in Chile; including the experiences of Chile Forum Members have shared in current and in past crisis, as they have assisted each other and Chile. Things will always go wrong. It is how you deal with it that counts, and that starts with information. When things go wrong, this is the place to come to exchange information about what is going on in Chile.
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Re: The Chile Economy, Social Crisis and Virus Impact

Post by admin » Wed Jul 15, 2020 7:17 pm

the chilean stock market seems to be loving this :roll:

ipsa 3.3% drop on the vote today.

https://www.emol.com/noticias/Economia/ ... ondos.html

But, if they sell off a large amount of the foreign investments held by the AFP, get ready for an interesting dollar / peso ride.

assuming this whole stupidity gets that far, it will probably amount to a ahort-term sugar rush for the economy.
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Re: The Chile Economy, Social Crisis and Virus Impact

Post by tiagoabner » Wed Jul 15, 2020 7:32 pm

admin wrote:
Wed Jul 15, 2020 6:51 pm
alextrombone wrote:
Wed Jul 15, 2020 2:38 pm
Could anyone who’s a bit more clued up about the AFP system and the Chilean economy give me some idea of the potential negative ramifications of the 10% reform being approved? Thanks.
poor people will be poorer.

rich will be richer.

not much more to it.
This is pretty accurate, actually. Unfortunately, I couldn't find the median value for AFP savings per month, but I could find the average value. Still, the average skews the amounts up, due to the high-earners increasing it, so these are conservative numbers.

This report from 2018 puts the average income for AFP calculation purposes at $753.477, so the average AFP savings would be $75.347 monthly per person. Assuming this amount was approximately constant over the last few years, this person would've had to contribute for 18 to 25 years (depending on which fund they are invested in) in order for their 10% withdrawal (capped at 150UF) to be equal to or less than 10% of their retirement savings. It is quite literally using the dinner money to pay for lunch.

Unfortunately, either the Chilean politicians didn't run the numbers or, even worse, they don't care for them. Sacrificing compound interest in the future isn't the solution for the current crisis, and I would bet that most of them are well aware of this. My read on this is that anti-AFP groups are betting on Piñeras unpopularity and on his government's lack of good propaganda strategies to push their agenda. And it seems to be working.

I can only feel sad for the roughly 3 million Chileans that are eligible to wipe out all money in their retirement accounts. They are going to screw over their future without even knowing how badly they're being fucked due to the lack of an advocate for their best interests.
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Re: The Chile Economy, Social Crisis and Virus Impact

Post by admin » Wed Jul 15, 2020 8:03 pm

Here, since no one else in the country seems to want to put forward a reasonable compromise :roll: :lol: :shock:

here is my two pesos, that I am sure pinera and the entire Congress is eagerly awaiting to read, as they keep hitting the refresh button to load the latest posts from allchile.net.


1. convert the whole AFP system in to a series of no load, none-profit, diversified index funds. sorry. AFPs your fired. self-managed investment funds, with reasonable guard rails. think jack Vogel here. Even the managment fees, get distributed back to the owners: THE PEOPLE

there is no good reason for a country this small, with only about 9 million workers, to have so many small crappy funds costing so much money to do what a monkey with a dart board could do better.

2. screw the milcos!!!!

sorry did I say that outloud?

rewrite the constitutional amendment that distributes a fixed percentage of the copper funds to the military, and use that money to actually make the country stronger.

All they are doing is pissing billions of dollars away on useless toys.

Do you really think the billions spent on those outdated, used, f-16s are going to be anything but scrap metal after about 60 seconds in a real war?

how about those tanks?

or those ships they just bought from Australia built in the 1990s?

do you think chile's vast military industrial complex will be able to produce replacement parts to hang in there, in a real fight?

It is a disposable army, so dispose of it now.

Chile needs to skip the 4th generation, 5th generation, and 6th generation manned fighters and go straight to low cost and highly deadly drones. That is a whole other conversation, but they are way cheaper.

don't even get me started about the value of an officer corp that has not been to war in over 150 years.

while we are at it, the military needs to sell of the billions of dollars in real estate it owns, including hundreds of hotels and resorts maintained for officers and their families.

throw in the dedicated hospitals for police and military. convert them all to public hospitals.

no more mandatory military service. small professional volunteer military for things like boarder patrol, etc.

3. increase the minimum wage. people have no retirement savings, because they don't make enough money. companies in chile can suck that up and adjust, given sufficient warning and gradual phased increases in the minimum wage. that puts pressure from the bottom on everyone's wages, pushing up. no economy has colapsed from a minnium wage increase.

4. the government needs to quit pissing money in to the wind in general on show projects.

5. I will get back to you with all the ones I forgot.
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Re: The Chile Economy, Social Crisis and Virus Impact

Post by Jamers41 » Wed Jul 15, 2020 9:40 pm

tiagoabner wrote:
Wed Jul 15, 2020 7:32 pm
admin wrote:
Wed Jul 15, 2020 6:51 pm
alextrombone wrote:
Wed Jul 15, 2020 2:38 pm
Could anyone who’s a bit more clued up about the AFP system and the Chilean economy give me some idea of the potential negative ramifications of the 10% reform being approved? Thanks.
poor people will be poorer.

rich will be richer.

not much more to it.
This is pretty accurate, actually. Unfortunately, I couldn't find the median value for AFP savings per month, but I could find the average value. Still, the average skews the amounts up, due to the high-earners increasing it, so these are conservative numbers.

This report from 2018 puts the average income for AFP calculation purposes at $753.477, so the average AFP savings would be $75.347 monthly per person. Assuming this amount was approximately constant over the last few years, this person would've had to contribute for 18 to 25 years (depending on which fund they are invested in) in order for their 10% withdrawal (capped at 150UF) to be equal to or less than 10% of their retirement savings. It is quite literally using the dinner money to pay for lunch.

Unfortunately, either the Chilean politicians didn't run the numbers or, even worse, they don't care for them. Sacrificing compound interest in the future isn't the solution for the current crisis, and I would bet that most of them are well aware of this. My read on this is that anti-AFP groups are betting on Piñeras unpopularity and on his government's lack of good propaganda strategies to push their agenda. And it seems to be working.

I can only feel sad for the roughly 3 million Chileans that are eligible to wipe out all money in their retirement accounts. They are going to screw over their future without even knowing how badly they're being fucked due to the lack of an advocate for their best interests.
I would argue that, first of all, people are already poorer due to the pandemic. If someone uses this money to pay off high interest debts, I doubt that they would get a better return for their money by keeping it in the AFP's funds or any other run-of-the-mill investment fund. Second, if the person is young, they are not actually taking out 10% of their retirement savings, it will be significantly less, assuming that this is a one time withdrawal. Lastly, the people who would be eligible to take out all of their AFP money (something I personally don't support, I think 10% should be 10%) will never have much of a pension regardless.

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Re: The Chile Economy, Social Crisis and Virus Impact

Post by tiagoabner » Wed Jul 15, 2020 10:12 pm

Jamers41 wrote:
Wed Jul 15, 2020 9:40 pm
I would argue that, first of all, people are already poorer due to the pandemic.
That is absolutely right. I'm not arguing that there needs to be a plan of action: I'm arguing against the one where the retirement system is sacked. Even Piñera's half-assed attempts at helping would be better than this project.
Jamers41 wrote:
Wed Jul 15, 2020 9:40 pm
If someone uses this money to pay off high interest debts, I doubt that they would get a better return for their money by keeping it in the AFP's funds or any other run-of-the-mill investment fund.
You're also correct that paying off high-interest debt is a financial emergency and it is, arguably, more important than saving for retirement. I'm not disagreeing with the "what", I'm disagreeing on the "how".
Jamers41 wrote:
Wed Jul 15, 2020 9:40 pm
Second, if the person is young, they are not actually taking out 10% of their retirement savings, it will be significantly less, assuming that this is a one time withdrawal.
You're wrong on this one, unfortunately. There is a floor for the withdrawal, which would be 35UF, per the current version of the bill.

That is:
  • The amount you can withdraw would be 10% of your retirement savings.
  • If you have less than 350 UF saved, the minumum withdrawal is 35UF.
  • The maximum amount you can withdraw would be 150 UF, which would be only if you have at least 1,500 UF saved.
  • Multiple sources have reported that 35UF is the whole retirement savings for over 3 million Chileans. Which is fucked up not only in that they most likely aren't saving up enough for retirement, but also in that they would be wiping out all of their savings.
This means that the bill would favor those with higher retirement savings (IE. the rich), while doing not nearly enough for those that really need it.
Jamers41 wrote:
Wed Jul 15, 2020 9:40 pm
Lastly, the people who would be eligible to take out all of their AFP money (something I personally don't support, I think 10% should be 10%) will never have much of a pension regardless.
I also agree with you in that most Chileans save way less than they need for retirement. However, wiping out their retirement accounts wouldn't solve this issue. Also, using a public health emergency to effectively bypass the need for a constitutional reform to change the retirement system doesn't sit well with me. And I'm in favor of more taxation to cover a decent retirement system.

Just so you don't think I'm picking up on you, I actually came up with a plan on how to tackle the crisis.

35 UF, which is what would roughly 3 million people would get while messing up with their retirement savings, is CLP $1,000,000. A simpler and cleaner solution would be for the government to issue a one-time CLP $1,000,000 payment for all Chileans and residents. One million pesos per RUT. If you have a cuenta RUT, it goes to your cuenta RUT, and its balance cap is automatically increased by $1,000,000 while the pandemic lasts. If you have another bank account, but not a cuenta RUT, it goes into it. If you have a RUT, but no bank account, you can withdraw it at any bank branch.

Simple, clean, with no need to juggle around metrics on who is eligible, and it would also not punish essential workers who may not be eligible otherwise (IE. working, so above poverty levels, but on a tight budget). At 18 million people, this would cost roughly USD $23 billion a pop. This scales up with the size of the household, so there isn't the need for any fancy math to make sure that children and larger families are also accounted for. Issue one of these once, them issue another one in three months, then another one in six months (if we don't have a vaccine by then). Auction exploration rights for known, but unexplored natural resource mines. I heard Lithium and Copper are in high demand, and there must be at least a couple of viable mines/reservoirs that can be shuffled around to come up with the cash.

The government's program would cost $12 billion per quarter, the AFP withdrawal program is estimated to cost $18 billion to the government. I would rather throw in $5 billion on top of it to make the problem go away definitely. But then again, this is Chile. They do need to come up with multiple half-assed attempts to fix the problem, instead of actually fixing it.
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Re: The Chile Economy, Social Crisis and Virus Impact

Post by tiagoabner » Thu Jul 16, 2020 1:30 am

Portal imobiliário released a report on the real estate market yesterday:

https://www.df.cl/noticias/empresas/con ... 20107.html

Rent prices are lower than in the first quarter, with prices falling more in the same comunas that were more affected by the price drops after the protests. Rent is down about 10% in Estación Central.
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Re: The Chile Economy, Social Crisis and Virus Impact

Post by Jamers41 » Thu Jul 16, 2020 1:51 am

tiagoabner wrote:
Wed Jul 15, 2020 10:12 pm


The government's program would cost $12 billion per quarter, the AFP withdrawal program is estimated to cost $18 billion to the government. I would rather throw in $5 billion on top of it to make the problem go away definitely. But then again, this is Chile. They do need to come up with multiple half-assed attempts to fix the problem, instead of actually fixing it.
Actually, the law as passed just today does not include any State spending. I will take the liberty of assuming that the $18 billion figure is something that you saw before today, and if I'm not mistaken it comes from the part of the legislation that says that a fund will be created to compensate for and replace the funds withdrawn, and said fund will be financed by both employers and the government. That item of the law did not pass the lower chamber today will the rest of the bill.

Also I'm not sure if you quite understood my comment about young people not actually taking out 10%. Let's say that you are correct and you have a relatively young person (28-30 years old), who would be qualified to take out ALL of his or her AFP funds now, because that person doesn't actually have much $$$ to their name. Basically that person, who we assume will be employed in the future (it not already) will continue to make monthly contributions to his or her retirement fund, until retirement age. If that person works until legal retirement age, and never, ever gets a raise (makes the exact same salary for 35 more years, which is VERY unlikely), then it's possible that the withdrawal of the AFP funds now really could end up being 10% of the value of all of the future AFP funds. However, what is much more likely to happen, is that their AFP funds will grow and continue to receive a return, and also this person will receive raises and/or better jobs once he or she is not so young, and so the value of the money taken today becomes less and less relative to the total retirement funds as time goes on. If you are talking about a poorer person who is not so young, say mid 30s or older, then yes the picture is quite different and if that person withdraws all of their money today because of this legislation then it would have a much more detrimental impact.

By the way I think your proposal is a good one.

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Re: The Chile Economy, Social Crisis and Virus Impact

Post by tiagoabner » Thu Jul 16, 2020 8:39 am

Jamers41 wrote:
Thu Jul 16, 2020 1:51 am
tiagoabner wrote:
Wed Jul 15, 2020 10:12 pm


The government's program would cost $12 billion per quarter, the AFP withdrawal program is estimated to cost $18 billion to the government. I would rather throw in $5 billion on top of it to make the problem go away definitely. But then again, this is Chile. They do need to come up with multiple half-assed attempts to fix the problem, instead of actually fixing it.
Actually, the law as passed just today does not include any State spending. I will take the liberty of assuming that the $18 billion figure is something that you saw before today, and if I'm not mistaken it comes from the part of the legislation that says that a fund will be created to compensate for and replace the funds withdrawn, and said fund will be financed by both employers and the government. That item of the law did not pass the lower chamber today will the rest of the bill.
The $18 billion figure is an estimate of the total amount that would be eligible to be withdrawn (18 mil millones, in Spanish):

https://www.df.cl/noticias/economia-y-p ... 22935.html

The government was working on the assumption that they would be the ones paying it back. Given that this rider wasn't approved by the Congress, somehow the law gets even worse, as it shifts the financial burden to those withdrawing the funds. Given that the poor are the ones who will be withdrawing a proportionally higher percentage of their savings, they would be the ones most affected by the consequences of the project.

The other issue with this project is that it's a one time thing. It is not repeatable, and it doesn't account for the pandemic crisis lasting more than a few more months. Which is naive, at best.
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Re: The Chile Economy, Social Crisis and Virus Impact

Post by admin » Thu Jul 16, 2020 10:14 am

let me throw some fuel on this debate, by pointing out something the left and everyone else does not even want to talk about.

THERE ARE MILLIONS OF WORKERS IN CHILE WITH NO AFP AT ALL.

I am not talking about young kids just entering the work force either.

It might suprise you who that is.

anyone that might be classified as an "independent worker" or "self-employed" likely has little to no AFP savings because it is voluntary.

who does that cover?

I am classified for tax purposes as an independent professional.

So is the guy that cuts my lawn.

My wife, an attorney, has also never paid in to the AFP system.

We have a bunch of young attorneys that work for us, that also we pay them, and they are responsible for paying their AFP and social security.

same with doctors, engineers, etc.

Ironically, our secretaries and other "contract workers" we do pay their AFP and other social security payments. oddly, people that get paid less, often have bigger and more consistent payments in to the AFP.

Professionals are on their own.

I only pay in to the AFP the absolute minimum voluntarily because I get to skip paying U.S. self-employment tax.

Now, obviously, my wife and I make sufficient money to be able to make other arrangements for our retirement; but, legally, there is zero diffrent between me and the guy that cuts my lawn.

further, and it is very common, people that work as say housekeepers and similar also do not pay in to AFP. Most housekeepers that have worked for us always wanted to be paid cash, and not have a contract. of course for our own protection, we have a contract; but, that is often not the norm. FYI, literally don't try this at home.

There is a whole mess of loopholes where an employer can skip making AFP payments.

part-time and temp workers for example.

we often hire people on a trial bases as part time workers. once they prove they can do the job, we give them a formal fulltime contract and pay their AFP. However, I am certain there are hundreds of thousands of people that simply remain classified as part-time workers, and buisnesses simply hire two or three people part time to fill what should be a single fulltime position that pays social security and AFP.

so, withdrawing funds from AFP is not going to help chileans through this crisis nearly as much as the left is trying to sell it.

If the idea behind these withdrawls is to provide emergency funds to weather the crisis, this will not do it.

so I am also highly suspicious of the left's intent here. I think they are purposely trying to create another crisis and protests when people realize they are not going to get any money from all this political BS.
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Re: The Chile Economy, Social Crisis and Virus Impact

Post by admin » Thu Jul 16, 2020 10:28 am

my guestimate, and I really have no hard data on this, by the time this is all said and done, and with all the small letters in the law, less than 30% or 40% of workers in Chile actually get their hands on 10% of their AFP, or less. probably a couple million people will get a few pesos.

which I am sure the communist congress will do the, 'see, look the AFP is ripping you off'; when in fact large portions of the population never paid in at all.
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Re: The Chile Economy, Social Crisis and Virus Impact

Post by admin » Thu Jul 16, 2020 11:04 am

oh, someone did the math.

https://www.emol.com/noticias/Economia/ ... 00000.html
De acuerdo con uno de los últimos análisis de Ciedess sobre el proyecto que permite abrir el retiro de fondos de AFP, en base a datos de la Superintendencia de Pensiones, el 50% de los 10,9 millones de afiliados posee un saldo menor o igual a $4 millones. En ese marco, el 27% de los afiliados (casi 3 millones) liquidaría totalmente su ahorro previsional; un 43% (4,6 millones de afiliados retiraría las 35 UF; un 24% (2,6 millones de personas), entre 35 y 150 UF, y el 6% restantes (696.098 afiliados) accedería al tope de 150 UF. Según la directora de Políticas Públicas de LyD, Bettina Horst, de todos los afiliados al sistema, 2,1 millones de personas sólo podrán retirar hasta $500 mil, ya que ese es su ahorro acumulado hoy en sus cuentas.
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Re: The Chile Economy, Social Crisis and Virus Impact

Post by tiagoabner » Thu Jul 16, 2020 11:19 am

admin wrote:
Thu Jul 16, 2020 11:04 am
oh, someone did the math.

https://www.emol.com/noticias/Economia/ ... 00000.html
De acuerdo con uno de los últimos análisis de Ciedess sobre el proyecto que permite abrir el retiro de fondos de AFP, en base a datos de la Superintendencia de Pensiones, el 50% de los 10,9 millones de afiliados posee un saldo menor o igual a $4 millones. En ese marco, el 27% de los afiliados (casi 3 millones) liquidaría totalmente su ahorro previsional; un 43% (4,6 millones de afiliados retiraría las 35 UF; un 24% (2,6 millones de personas), entre 35 y 150 UF, y el 6% restantes (696.098 afiliados) accedería al tope de 150 UF. Según la directora de Políticas Públicas de LyD, Bettina Horst, de todos los afiliados al sistema, 2,1 millones de personas sólo podrán retirar hasta $500 mil, ya que ese es su ahorro acumulado hoy en sus cuentas.
And on top of that, those who earn more would be able to do a somewhat simple accounting maneuver in order to save on taxes:

https://www.t13.cl/noticia/negocios/ret ... s-ingresos

Before I get to a layman explanation, this isn't tax advice or legal advice. You should look for a professional if you need personalized advice.

That said, Chile has an "APV" system for voluntary pre-tax retirement savings in addition to the "AFP" mandatory pre-tax retirement savings. The current proposal would make the 10% AFP withdrawal be a tax-free withdrawal. There is a tax benefit to investing into an APV. The tax maneuver is to withdraw the funds from the AFP, turn back to whatever APV company suits you best and invest them into an APV account. You would have the same amount saved into your retirement accounts (and possibly in a better investment, depending on the APV), and the amount that you invested would be deducted from your taxable income, giving you a tax credit in your 2021 return.

Interestingly enough, this loophole benefits those that earn more and who won't need the 10%. Such as the Chilean Congressmen, who are famous for being grossly overpaid. Talk about conflict of interest. :roll:
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