Chequing out

Lawmakers allow withdrawals from Andean pension funds.

Chile has passed an extraordinary coronavirus measure to help its people cope with the economic impact of the pandemic by allowing people to withdraw 10% of their savings from their private pension funds (AFPs). This isn’t a novel strategy, Chile’s neighbour Peru permitted a 25% withdrawal earlier in the year, but it is a surprising move from the financially conservative country.

Chile has the most orthodox savings system in Latin America and has never allowed withdrawals of any kind so alarms bells were ringing around the Chilean financial markets. “It is expected that the Central Bank will significantly support short-term liquidity, as seen in Perú, with an easy liquidation of international assets and short-term assets where the Pension Funds are not impact actors. What can be seen is an appreciation of the Chilean peso that could break the floor of 750 pesos per dollar” said the portfolio director of one of the biggest Adean banks, “the AFPs may repatriate between USD 3-7 billion.”

“We expect slightly positive returns between 0% and 1% in 2020.”

VP at a Colombian Pension Fund.

Colombia has also introduced a law that would allow the withdrawal of 10% of funds for the newly unemployed that have not received any help from the government. “We expect a minimum delay of 10 weeks for the processing, although it is expected that the project could take the whole year, and even extend beyond March 2021 to be approved,” said our source.

So how are the Pension Funds in the region going to generate returns? A VP at a Colombian Pension Fund said “we estimate that the recovery process will continue and we expect slightly positive returns, we are thinking about returns between 0% and 1% at the end of 2020”.

“Private equity investments should continue to grow and generate real returns.”

A portfolio director at one of the biggest Adean banks.

A portfolio director at one of the biggest Adean banks is thinking more about alternatives, “It is difficult because interest rates on government bonds are close to zero. It’s hard enough to get risk-adjusted returns. But, we believe that less liquid or private equity investments should continue to gain space and to support the development of countries and generate real returns”. Someone tell LAVCA!


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