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Chile: President Piñera announced updated proposals for pension reform bill


January 21, 2020 ( Newswire) Last week's highlights: President Piñera announced updated proposals for pension reform bill. On a national television broadcast yesterday, President Piñera announced modifications to the pension reform bill sent to congress in October of 2018. These proposed changes are also added to those already approved last December to increase the lowest pensions by up to 50%. The president mentioned the new bill will be presented to congress this week. On the macro side, the President did not disclose the impact in fiscal accounts. Below, a deeper look of the new proposals:

he bill creates a "new pension system" based on 3 pillars: i) Solidarity based pillar, financed by the State; ii) Pillar of Individual Savings, financed by workers and employers; and iii) Pillar of Collective and Solidarity Savings, financed by employers and also with an initial contribution from the State.

Gradual additional contribution of 6% paid by the employer: 3% will go to the worker's individual savings account and the other 3% to a collective public fund called the Collective and Solidarity Savings Fund, which will be managed by a public and autonomous entity. With this proposal, the Government increases by 100bps the 5% increase offered in the original bill that is paralyzed in Congress. But, although the 6% now raised by the Government coincides with the figures proposed by the opposition, the substantial difference is that the latter contemplates that the entire additional contribution be directed to a solidarity fund.

Once the bill gets approved, there will be immediate benefits to current pensioners who have a minimum of contributions: UF 2 (USD 73) in the case of men, and UF 2.5 UF (USD 91) for women. The President also announced that the bill contemplates that future pensioners will receive this same increase plus an additional benefit that will depend on the time they have contributed after the approval of the bill.

The bill also proposes some adjustments to the current AFP system, such as: i) open the door to new players such as non-profit entities, ii) managers must return part of the commissions charged in case of negative return of the funds, iii) managers will not be able to charge commissions for investments in national mutual funds, and commissions are restricted for other items, and iv) greater participation of affiliates.

According to the President, this reform in regime, together with the improvement of the Solidarity Pillar already in operation will allow increasing pensions by about 30%. Piñera explained that no pensioner will be below the poverty line and that the pensions of those who have contributed for 30 years or more will be always above the current amount of the minimum wage, expressed in UF. Still, a working table will be established with the specific mandate of analyzing other possible changes and improvements to the pension system.

Main data and events to come

No relevant data will be published this week.

Colombia: private consumption remained strong despite the social protests

Last week's highlights:

Consumer confidence partially recovered in Dec-19 after the shock from the social protests in Nov-19. According to Fedesarrollo, the consumer confidence index rose +4.9pp m/m in Dec-19, up to -9.5%, its highest level since Jul-19, though it accumulated nine consecutive months in negative ground. The monthly advance was mainly explained by the improvement in the expectations of consumers, which rose +7.8pp m/m to -7.7%, while the current conditions component remained broadly stable at -12.2% (+0.6pp m/m). Thus, consumer sentiment totally recovered from the shock of Nov-19 (-4.6pp m/m to -14.4%), which was explained by the nationwide social protests and by the strong depreciation of the COP, which reached a new record low on 29-Nov-19 (COP 3,517). Since then, protests have declined significantly, and the COP has strengthened by ~5.5%. A further recovery of confidence could be observed in the coming months as, contrary to previous years, there has not been a shock on consumer perception recently (at 2018-end, there was the proposal to include foodstuffs in the VAT base). We expect household spending to remain strong in the coming quarters regardless of the trend in consumer confidence as the indicator has been affected by the political polarization of the country.

Retail sales slowed amid a high statistical base and industrial production contracted in Nov-19 (see full note). Retail sales rose +4.4% y/y in Nov-19, the slowest pace since Apr-19, though it was above the market consensus (+4.1% y/y) and our forecast (+2.7% y/y). We highlight that there was a challenging statistical base in vehicle sales due to the bi-annual ‘car festival' in Bogotá that was held a year ago. Indeed, vehicle sales contracted -15.9% y/y in Nov-19 (+46% y/y in Oct-18, a 90-month high), while retail sales ex-vehicles rose +8.5% y/y, the second-best performance of 2019, showing the still-strong dynamics of household spending.

On its part, manufacturing activities fell -1.5% y/y in Nov-19, below the market consensus (+1.2%) but close to our projection (-1.0%). This figure was impacted by a negative calendar effect (Nov-19 had 19 working days vs 20 in Nov-18); we highlight that the seasonally-adjusted series rose +1.2% y/y. In any case, we are not optimistic about the local manufacturing sector as it is too dependent on the performance of the economic activity of the region, which will remain weak this year. Nov-19 activity figures were particularly relevant as there were nationwide social protests towards the end of the month (the longest-lasting protests were in Bogotá). At first glance, the effects of the demonstrations, if any, were not significant in the short term.

Main data and events to come

On Tuesday, DANE will release the figures of imports and trade balance of Nov-19. Consensus: USD 4.5bn (Oct-18: USD 4.3bn), and USD -1.5bn (Oct-19: -0.81bn).

Peru: GDP growth stood below 2% y/y in both Nov-19 and Dec-19

Last week's highlights

Monthly economic activity grew 1.9% y/y in Nov-19, decelerating from the 2.1% y/y observed in Oct-19, while it came below the market consensus once again (Bloomberg survey: 2.4%). Thus, economic activity accumulated a 2.1% y/y growth through November, from 4% in the whole 2018. Also, the INEI reported that the economy rose 0.3% m/m in seasonally-adjusted terms in Nov-19.

Primary sectors grew +2.8% y/y in Nov-19, the second-best performance of the year and contributing with ~0.5pp to headline growth. This was mainly due to agriculture (2.1%), hydrocarbons (6.7%) and mining (3.5%, a 20-month high), explained by a higher extraction of iron (94.7%), lead (9.1%) and molybdenum (57.3%), partially offset by gold (-10.3%) and copper (-1.6%). On the other hand, the fishing sector contracted 13.8% (a 6-month low) and primary manufacturing fell 2.3%. Non-primary sectors decelerated for the second consecutive month, growing just 1.8% y/y, the slowest pace since Apr-17. Construction activities dropped -3.7% y/y (Oct-19: +1.2%) mainly explained by the slower physical advance of public works. Non-primary manufacturing contracted -2.7% y/y (Oct-19: -3.6%). For its part, commerce rose 3.5% y/y, in line with the observed in Oct-19 and total services grew 3.1% y/y (Oct-19: 2.9%).

The latest available leading indicators signal that growth was also weak in Dec-19.

Specifically, the Hydrocarbons sector grew 1.3% (Nov-19: 1.3%), electricity production rose 2.6% y/y (Nov-19: 2.8%), anchovy capture fell 73% y/y (Nov-19: -19.2%) and general government investment contracted 16% y/y. In our December Quarterly Andean Macro Report we maintained unchanged our 2020 GDP growth forecast at 3.0%. As noted back then, this will be a misleading acceleration in comparison to 2019. We expect a recovery of primary sectors and a strong rebound of public investment (+8.0%). However, private spending would slow due to zero or marginal growth in private investment. Non-primary sectors will grow this year roughly 3.1%, similar to 2019, but the risks are biased to the downside.

Main data and events to come

No relevant data will be published this week.

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