EXCLUSIVE: A Fourth Withdrawal Could Be “Quite Irresponsible”: Chile’s Finance Minister

Rodrigo Cerda, speaks about the financial challenges of the last months of Sebastián Piñera’s government.

Rodrigo Cerda, Minister of Finance of Chile
August 05, 2021 | 03:35 PM

Santiago, Chile — Long before the Covid-19 pandemic, the Chilean economy experienced a severe downturn. An unprecedented wave of demonstrations, which began in October 2019, led to business closures and losses of more than US$1.4 billion due to infrastructure damage. Then the coronavirus landed in Chile in March 2020, and recovery seemed distant.

But an accelerated revival began a few months ago. Driven by a massive vaccination, social aid, copper prices and even three early withdrawals of pension funds, the economy showed a rebound of 20.1% in June and the Gross Domestic Product (GDP) is estimated to grow at 7.5% by 2021. “We are talking beyond a rebound effect, but rather we are having some more growth, more genuine growth,” Rodrigo Cerda, Minister of Finance, told Bloomberg Linea.

With seven months to go before the end of Sebastián Piñera’s second term, the government outlines a path for continued expansion. “We are working with two commissions of leading economists and professionals, external to this Ministry, who are going to provide us with recommendations to create jobs and maintain growth in the medium term,” he explains.

The aftermath of the crisis are almost two million jobs lost, from which close to one million have already been recovered; and enormous fiscal spending, which in the first half of the year soared to levels not recorded in Chile: 26.9%, compared to the same period in 2020.


Bloomberg Línea: Chile is projected to be one of the countries with the highest growth in Latin America. What has been the Chilean formula to recover economically?

Minister Cerda: There is a greater recovery due to the reopening process, and that generates more investment. But also, as a public sector, we are trying to support this process. What does this support mean? During this 2021, we are giving an important fiscal impulse, related to greater transfers to the population and greater public investment. The higher transfer is very important, because it gives peace of mind to the population in a process that has been hard, but we are trying to give them all the support possible.

We have a very important public investment package. More than public investment, all the capital spending that comes from the public sector, in general, is close to US$8 billion every year. This year we have a projected capital expenditure that could reach US$12 billion. This is practically a 50% increase in public investment compared to normal and this is important because it generates a reactivation process that should go hand in hand with more employment.


Although Chile is not the richest country in the world, it is one of the countries that has provided the most subsidies. What is the future cost of this expenditure?

That is precisely the point. Today we have a higher expenditure than we had before, but this expenditure has given a peace of mind to the Chilean family. We have a program such as the universal Emergency Family Income (IFE), which is giving certainty and peace of mind to the Chilean family. This allows them to organize themselves and generate a process in which they can look for a job and start a business.

That has allowed, if we look at different surveys, the confidence we have in the economic recovery is at levels prior to November 2019 (during the social outburst). That happens not only in confidence issues, but in consumption expectations and about how they expect companies to be in Chile.

We are seeing more confidence in what is happening, and that has gone hand in hand with the process of more social aid that brings tranquility. Indeed, we have more expenses than other years, but it´s a public expenditure that allows us to close the gap quickly.


Many Latin American countries have been withdrawing the fiscal impulse during 2021. These are countries that are growing, but not as fast as Chile and that means that they are not closing the gaps as fast.

We can do this because we have a fiscal rule that permits us to save in good years. Those savings are designed for complicated years. There is no year that can be described as complicated as these pandemic years. We did not have a drop in the Gross Domestic Product (GDP) of, practically, 5.8.

Our rule gives a necessary impulse to come out quickly (of the crisis) and with peace of mind for the Chilean family. Once the pandemic recedes, we have to return to more normality. These programs will be transitory and will have to disappear as the pandemic does.


The government is drafting the 2022 Budget Act. How will they manage to withdraw the fiscal stimulus for next year?

Practically all these programs have start and end dates. Which means, in Chile, this is financed through a fund called COVID, which has a start and end date. This also means that many other programs, for example, we now have a bonus program for SMEs that also has a start and end date, and it is designed to be transitory.

This transitory nature will allow us that tomorrow, when the pandemic recedes, these programs can be withdrawn. As long as the pandemic is here, these programs will continue to be available to Chilean families.

Congress has already set a date to debate a fourth withdrawal of provisional funds. What strategy will the Government use this time in the face of a proposal of withdrawal pension funds?


We will try to dialogue in Congress, to convince. But it seems to us that the conditions that exist today are very different from those that existed months ago. How so? We are in a process of recovery, with high growth in the Monthly Index of Economic Activity (IMACEC) and we have started to have a recovery in employment.

We have more mobility, and in this recovery process, we are starting to see that we have more jobs, with better salaries. We have a universal IFE with amounts to ensure that no one is in poverty, because they are amounts that allow us to be above the poverty line, and this month we are reaching 15,800,000 people.

We are in a situation where this type of policy is not only unjustified, but also quite irresponsible.


What lessons did the three previous withdrawals teach the government?

More than lessons, I would say the consequences. There are almost 5 million of our compatriots who were left without capitalization funds, or with very small ones. This reduces the possibility of good pensions in the future.

When we talk about the fourth withdrawal, I take the opportunity to speak to our compatriots and to the Chilean family: As a government we are trying to ensure that the social aids arrive, that they are available to maintain their savings. We are concerned that the most vulnerable Chileans have been left with very low funds in their capitalization accounts. We have observed that not all of these withdrawals, which have already been made, have gone to consumption. About 40% has gone to consumption and the rest, apparently, is still in liquid bank accounts and, if they are there, people could use those resources and would not need additional withdrawals.


There are analysts who believe that much of the management of public finances in Chile has been conditioned by Congress. How much have congressional decisions impacted Chile’s fiscal situation?

The important thing is the following. We have had a pandemic that has been long and has also had a strong impact on the economy and therefore on jobs and salaries. In this context, as a government, at the beginning of the pandemic, and as we saw that the pandemic could last longer, we began to provide social assistance. But, as it became longer and more intense, we have decided to deliver those social aids more strongly.

But has the government ever felt pressured by Congress? The withdrawal pension proposals have come out of Congress.


Other than pressure, I would put it in another way: what the government has is concern for the Chilean family. This concern generates the programs we are seeing today. What we do believe is that these programs are effectively giving peace of mind to the Chilean family because this is what different indicators show us.

That is what is really important at the moment. Once we see the light at the end of the tunnel and the pandemic effectively recedes, that will be the moment when we will surely start to withdraw these aids. For the time being, we want to tell our compatriots that they can rest assured that we will be on their side.

Regarding the political sphere, a recent poll resulted in favor of a candidate Gabriel Boric, who recently said: “Chile was the cradle of neoliberalism and it will also be the tomb of neoliberalism”. What can we expect from his eventual triumph?


We are in a whole electoral process and we have been voting several times because we are somehow channeling a constitutional process. That should be remarkable. Beyond all the problems, we are solving them as Chileans do; we are solving them through our institutions and one of the institutions we have are our democratic elections, which today are going through a constituent convention. Also, just as every four years, Chileans are going to decide who is our next president. I have the utmost confidence that Chileans will decide and, as has happened, different governments have different emphases, and some are moving somewhat faster.

There are also a lot of expectations in the market for the Constitutional Convention. What do you think will happen with the Chilean economic model?

That is part of the conversations that the Convention must have. I am not going to “stall” it, but yes, what one observes, is that we have had an important development process in the last 30 or 40 years and, with more or less difference, surely Chileans are going to opt for this (process).

One would hope that what comes out of the Constituent Convention will allow us to continue growing, to continue having more opportunities for Chileans. Why? Because it benefits every family, but also because as long as we generate an important growth process, it will allow us to finance many of the social demands. We have to give the Convention time, let it do its job, and that is what we have to wait for.

What challenges does the Chilean economy face, once the electoral panorama and the drafting of the new Constitution are clear?

We have important challenges, an important development. We will have an important growth process, beyond last year’s fall because we will grow more than what would be a statistical rebound effect. We hope that this will allow us to create jobs.

Also, what will happen, especially from next year onwards, is that we have to focus on generating greater growth conditions in the medium term, and there the Chilean economy has a challenge because in the last few years it has had a process in which its medium-term trend growth has been gradually decreasing, and we have to try to boost that growth process.

How do you visualize the last months of President Sebastián Piñera’s government at the economic level?

The growth projections for this year are quite promising. We are expecting more growth in the coming months. In this scenario, our real emphasis is that this growth goes hand in hand with employment. Our concern is how to recover the million jobs that we are still missing, because that is the best social protection for many Chileans.

Besides the recovery of jobs, is there any other factor that concerns the government at this moment?

We are interested in job creation, which is fundamental. But also, hand in hand with that, we want to outline a path to maintain the growth trend, and for that it is also very important to generate different initiatives. We have introduced, for example, a Donations Law that allows different social organizations to continue making different contributions to society and, as this project was introduced recently and is being discussed in Congress, we hope to introduce other projects that have to do with the focus of harmonizing the State and maintaining economic growth going forward. But surely there are other things that we will be seeing in the coming months or weeks in Chile.

And at the regional level, how does Chile view the recovery of the rest of the Latin American economies?

We see it with hope. We have seen that several Latin American countries, for example Uruguay and now Ecuador, are starting to have a more accelerated vaccination process. We hope that the different economies will be able to recover.

We, as a country, are going to support, as far as we can, the rest of the countries. We believe it is very important because as long as the region is doing well, this will appease to us all the Latin American countries. We hope so, and Chile is a little ahead and with a faster fiscal pulse, which allows it to come out a little faster than other countries. But we hope that other countries will also do so.

How can Chile support the rest of the Latin American countries or allied countries?

We have had an agenda that has been, I would say, quite intense through multilateral organizations such as the InterAmerican Development Bank (IDB), the Monetary Fund, among others, in what we have tried to do is to generate networks that allow us to support our neighboring and Latin American countries, because we see that there is some more advanced recovery in more developed countries, but that our neighbors, and Chile also in this context, are lagging behind and we need to accelerate and step on the accelerator so that we can get out quickly. To the extent that Chile can support, especially through all the multilateral organizations, it will continue to do so.

What does Chile propose to strengthen the Pacific Alliance?

We are all involved in a process with the Pacific Alliance, which began some years ago, but with an agenda of modernization and integration of financial markets and we intend to continue taking it up again. In these years of pandemic, the process with the Pacific Alliance has been slower because each country has focused on their own population. As we emerge from these pandemics, we hope to continue with the integration of the financial markets, which are very important for the flow of capital between the different countries of the alliance and this will allow us to take advantage of investment opportunities.