Chile’s celebrated $200bn private pensions system has served as a model for dozens of emerging markets since it was introduced in the 1980s. Now, it faces an existential crisis as public support for the model fades and populist politicians allow savers to withdraw funds during the coronavirus crisis.
The lower house of congress voted to allow Chileans to withdraw another 10 per cent of their pension funds last week, following a similar measure in July that saw withdrawals of some $17bn.
Congress could yet approve a third withdrawal next year, putting at risk a pool of savings that has driven the growth of Chile’s capital markets and jeopardising future returns.
That is from Benedict Mander and Michael Stott at the FT. Of course you can say “Ah, they shouldn’t do that!” And they should not. Still, at the end of the day if you leave surpluses sitting around to be grabbed or handed out, don’t be surprised if they are grabbed or handed out. Arguably the famed Chilean scheme has been shown to be time-inconsistent. It was, however, nice while it lasted.