Bumpy road ahead for AFPs

By Nono Barahona. April 6, 2017

SANTIAGO, Chile. Any Chilean working under an employment contract knows what an AFP is, because the moment they are hired by a company they are required by law to join an AFP. No choice there. Well, they can choose which one of the several AFPs they want to join.

The AFPs are the private companies that manage the workers' savings for pension payments. They "manage" in the sense that they try to increase those savings while at the same turning in a profit.

Any Chilean working under an employment contract knows that 10% of their monthly salary goes to an AFP, every month. The law says so and there is nothing they can do about it. And they know that in most cases a worker can not receive pension payments from an AFP before they reach the age of retirement, which for men is 65 years of age and 60 for women. 

And any Chilean has heard the rumor that after they retire they are going to get a pension that is going to be far below, way far below, their last paycheck as an employed worker.

And that's something that scares everyone.

Enter the "No more AFP" movement. The movement staged its fourth rally the Sunday before last, March 26 (See our article). They claim that 2 million people took to the streets on that day all over the country ---that is approximately 11% of the Chilean population, a lot of people.

In their website, they say that AFPs pay a third of your last paycheck, that in all developed countries and in almost all OECD countries (Chile is an OECD member) people get on average 70% of their last paycheck for pension, that in those countries pensions are handled by State-run entities, and that in those countries private companies are only supplementary to the State-run entities and do not replace them (in Chile there are no State-run entities). 

For all those reasons, the "No more AFP" movement wants to give AFPs a one way ticket to hell.

However, most experts say that is not likely to happen. What did happen, though, is that they got everybody talking about the AFPs, and often in a bad way.

In fact, the movement's impact has been so huge that now, for the first time since the inceptions of AFPs 37 years ago, a major proposal has been floated to change the system, and everyone seems to agree on it: increase by 5% the mandatory statutory 10%.

Big question: Who is going to pay for that additional 5%? The worker? The employer? The Chilean State? A combination of the 3?

Another big question: Who is going to manage the additional 5%? The AFPs? A State-run entity? Something in between?

Still another big question: Who is going to implement the additional 5%? The current administration of President Bachelet, now into its final months, or the next administration, yet to be elected?

No consensus has been reached so far on the answers to those big questions.

With widespread dissatisfaction with them fueled by the "No more AFPs" movement, AFPs are now sailing in rough waters.

Chilean Central Bank cuts Chilean GDP growth forecast to 1.0% to 2.0% in 2017

By Nono Barahona. April 3, 2017

SANTIAGO, Chile. In a report submitted today, the Chilean Central Bank said that the Chilean economy will grow between 1.0% and 2.0% in 2017, cutting by 0.5 percent its forecast of December 2016.

In December 2016, the Central Bank had estimated the Chilean GDP growth at between 1.5% and 2.5% in 2017.

Under the report's new GDP growth estimate range, the Chilean economy runs the risk of growing below 1.6% in 2017.

In 2016, the Chilean economy grew 1.6%, the lowest since 2009.

The report said that a major factor cutting the GDP growth forecast was the strike by workers of La Escondida in the first quarter of this year.

La Escondida is the world's largest copper mine. Its workers went on strike for 43 days, in the longest strike in the history of the Chilean mining industry. 

The strike ended last March 23.

The Central Bank report said that, as a result of La Escondida strike, GDP growth for the first quarter of 2017 is close to 0%, adding that the strike would trim by 0.2% points the annual GDP figure for 2017.

In a more positive note, the report said that the Chilean GDP is expected to grow between 2.25% and 3.25% in 2018.

Chilean economy loses 120,000 jobs over last 12 months, says El Mercurio

By Nono Barahona. April 1, 2017

SANTIAGO, Chile. "El Mercurio", an influential Chilean newspaper carried a front page story today saying that 120,000 jobs were lost in the Chilean economy in the last year.

The story indicated that the 120,000 jobs lost involved people working under employment contracts, as opposed to self-employed workers.

Employment contracts provide workers with pension fund savings and health care insurance.

The story says that the job loss figures were based on a report by the Chilean National Institute of Statistics, referred to as INE in Chile.

111,000 jobs were lost in the private sector and 9,000 in the public sector, the story says.


On the other hand, self-employed workers grew 131,730 over the same 12 month period.

A scholar was quoted as saying that 83% of self-employed workers do not contribute money to their pension funds, do not have health care insurance and have very low income.

That means that self-employment in Chile is no match to working under an employment contract in terms of income and social security.

The INE report was published yesterday, but it only provided percentage unemployment figures. It says that unemployment grew 0.5% over the last 12 months and that it jumped to 6.4% in the December 2016-February 2017 quarter, the highest for the same period in the last 6 years, says the paper.

The fact that an influential newspaper says that 120,000 jobs were lost in one year lends a lot of credibility to the story, in what seems to be a scoop for the paper.

This story, and similar ones (See our stories "Chile's 2016 GDP growth of 1.6% lowest since 2009" and "Chilean construction industry takes a dive") over the last few days paint a grim picture of the Chilean economy in 2017, a year in which a presidential election is scheduled for November 19.

Whopping 77%-80% jump in profits of Chilean retailers in 2016

By CTN. March 28, 2017

SANTIAGO, Chile. 2016 was a rosy year for Chilean retailers, because they saw profits jump between 77% and 80% relative to 2015, according to two Chilean newspapers.

The stories covered the 6 major retailers in the country, with 3 of them reverting losses posted in 2015, the newspapers said.

In Chile, the 6 largest retailers play a major role in society.

There is a chance that you will come into contact with one of them every day, because the two largest ones, for example, operate not only big department stores in malls or in the shopping areas of the cities, but also country-wide supermarket chains, malls, and they have even branched out into banks offering you loans, bank accounts and credit cards.

The stories indicated that the profit figures were taken from the reports submitted by the retailers to the Chilean regulator of the industry, known has Superintendency of Securities and Insurance.

But, it was noted, the success came at a price ---the retailers slashed 22,000 over the last 5 years.

Chilean construction industry takes a dive

By Nono Barahona. March 23, 2017

SANTIAGO, Chile. If you take a walk around Santiago, especially in the districts located in the eastern part of the city, you'll see a lot of shining new buildings. This writer lives in an eastern district of Santiago and he is used to seeing new buildings spring up everywhere, changing the face of the city and well known streets. And if you drive around in your car, you have to be careful not to fall into one of those "craters" opened up in the streets by those heavy duty construction trucks.

But now it seems that the construction industry itself has fallen into one of those craters, because the latest figure indicates a massive slump in the industry.

The Chilean Construction Chamber said that construction had taken an annual dive of 5.9% as at January 2017, the worst since October 2009. 

And the Chairman of the Chamber said that such drop was consistent with the country's low GDP growth and low private investment, which translates into pessimism among construction businessmen and high uncertainty about the Chilean economy, according the Chilean Construction Chamber website.

The Chamber said that a clear sign of what is going on in the industry is that applications for construction permits (a statutory requirement if you want to build something in Chile, regardless of the nature and no matter the purpose) registered an annual drop of 24.4% as at January 2017.

Chile's 2016 GDP growth of 1.6% lowest since 2009

By Nono Barahona. March 21, 2017

SANTIAGO, Chile. Citing figures released yesterday in a report by Chile's Central Bank, newspapers and TV news shows focused today on the fact that Chile's 2016 GDP growth of 1.6% was the lowest in the last 6 years since 2009 and they also pointed out that 2016 marked the third year in a row with falling investment.

The story took center stage today on the cover of one of Chile's leading newspapers.

The Chilean Central Bank report stated that the Chilean GDP grew 1.6% in 2016 and that investment fell 0.8% in the same year.

The media was quick to point out that the Chilean economy hadn't seen 3 years in a row of negative investment since 1971-1973.

For many Chileans, the 1971-1973 period conjures up images of economic chaos.

Experts quoted in the media said that the declining GDP growth was caused mainly by the negative investment figures and suggested that the negative investment figures combined with the low GDP growth figures point to a downturn in the Chilean economy over the last 3 years.

Economists were quoted as saying that the reasons for the negative investment figures lie with some policies of the current Chilean administration and with the low copper prices in the international markets.

Asked about the GDP and investment figures, Rodrigo Valdés, the current administration's economy minister, stressed that Chile has a "healthy" economy that is able to grow more. For him, what is important is that the Chilean economy has no macroeconomic tensions that could prevent economic growth and that the government has been able to keep low unemployment figures.