Chile’s pension withdrawal law could expose extent of social security deficit

Congress allowed Chileans to make withdrawals from individual pension funds as an emergency measure during the Covid-19 pandemic. This could spell trouble for the Piñera government. With over 360,000 confirmed cases and pushing 10,000 Covid-19 deaths, Chile has the eighth highest infection tally in the world, despite having only the 63rd highest population. In response, Congress approved a law allowing citizens to make a 10-percent withdrawal from their individual pension funds, called Pension Fund Administrators (AFPs).

The move was pushed through without the consent of right-wing President Sebastián Piñera, but was supported by the majority of Chile’s lower house, in response to the severe economic crisis on the horizon, partly caused by the Covid-19 pandemic. In 2020 alone, the country’s own forecasts have Chile’s GDP falling 7.5 percent, which would be its worst result in 35 years.

Beyond causing another headache to Mr. Piñera only three months before Chile goes to the polls for a referendum on opening a new constituent assembly, the government fears that opening up the Pandora’s box that is the country’s AFP pension system could reveal the extent of the social security deficit — one of the main point of contention sparking 2019 street protests against inequality.

Over 10.9 million Chilean workers...