(Bloomberg) -- Chile's lower house rejected dueling proposals for a new round of pension fund withdrawals, adding more drama in what has been a thorny political issue early in President Gabriel Boric's government.
Broad legislation that would have cleared the way for as much as $15 billion in drawdowns failed to get the three-fifths support needed to advance. Likewise, a more limited government plan presented in efforts to block the rival bill did not receive the simple majority needed in a late-night vote on Monday.
The votes represented a test for the new left-wing government at a time when Boric's approval ratings have slumped on factors including surging inflation and the polarizing process of drafting a new constitution. While the rejection prevented another blow to the nation's private pension system that's been the bedrock of local capital markets, it is also likely to hit the government's popularity further.
“We expect further attempts to be made,” BTG Pactual analyst Cesar Perez-Novoa wrote in a research note on pension withdrawals. “Politically, President Boric has stuck to his commitment to ‘the people and their needs', but now may face further fragmentation within his left bloc.”
Five-year interest rate swaps dropped 10 basis points in morning trading on Tuesday. The benchmark stock exchange rose 1.4%.
While Finance Minister Mario Marcel told reporters Tuesday the government could consider submitting its proposal to the senate, Boric said minutes later that he won't insist on a limited withdrawal. Instead, the administration will move on to issues such as a broader pension reform, Boric said.
Frustration
Three prior rounds of withdrawals injected a whopping $50 billion into the economy, causing it to overheat and helping propel inflation to the highest since 2008.
Read more: Chile Shifts to Damage Control With New Pension Proposal
Still, putting cash in people's pockets is an idea that many lawmakers find hard to resist given its ample appeal to Chileans. Boric himself backed an unsuccessful fourth withdrawal bid in December when he was still a lower house deputy, saying he was committed to “the people and their needs.”
After winning the presidential runoff that month, the new head of state and his closest advisors said they would oppose legislation for more drawdowns.
Amid difficulties in rallying lawmakers against a new withdrawal, Marcel surprised Chileans last week by presenting the administration's own plan. At that time, he said it was the fruit of negotiations with legislators, and that it would help the population without fueling consumer price gains.
“We presented an alternative bill, but it didn't get the votes,” said Presidential General Secretary Giorgio Jackson. “More than a defeat for the government, this represents frustration for the people's expectations.”
The government also backed a proposal that would protect pension fund savings from expropriations, in a bid to garner support from right-wing lawmakers.
Disapproval of Boric rose to 57%, up more than 10 percentage points since mid-March when he took office, according to a survey by Santiago-based pollster Activa published on Sunday. His approval rating fell 6.2 percentage points to 28%, the poll showed.
Read more: Chile President's Disapproval Rating Reaches 50% in First Month
Chile's gross domestic product grew a record 11.7% last year largely on temporary stimulus against the coronavirus pandemic and the early pension withdrawals. Annual inflation hit 9.4% in March, the highest in 14 years.
©2022 Bloomberg L.P.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
