MercoPress. South Atlantic News Agency

Chilean private pensions' funds divestment anticipates major political challenge for the Piñera administration

The Bill, which polls suggest has widespread public support, has been staunchly opposed by the government of Piñera, but was approved by 29 votes to 13

Chilean senators on Wednesday voted to approve a controversial bill that allows citizens to withdraw 10% of their pension savings to help ease the economic impact of the coronavirus outbreak.

The Bill, which polls suggest has widespread public support, has been staunchly opposed by the government of President Sebastian Piñera, but was approved by 29 votes to 13 with one abstention.

Swift passage of the Bill, and surprise cross-party support, has pushed Mr Piñera's centre-right ruling coalition to the brink of collapse and brought warnings of dire economic consequences.

It also raised concerns about a swerve toward populism following months of rioting and protests last year over inequality and precarious living standards in one of Latin America's traditionally most stable and prosperous nations.

Senators approved the vote with five government representatives crossing the floor to support the opposition in voting it through.

On Wednesday night, they continued to debate proposed amendments to the Bill, including who can access funds, and a provision that would see the government or employers replenish pensions after the Covid-19 crisis.

If all amendments are rejected, the Bill can be signed into law. If any are approved, it will return to the Lower House for a final vote as early as Thursday.

Once the Bill is approved by Congress, Mr Piñera can veto it, or it could be referred to the Constitutional Court. But either move would likely spark a resumption of last year's street protests.

The government has argued its own rescue packages - worth nearly 12% of GDP - will buoy Chileans left unemployed or in poverty because of the four-month economic shutdown stemming from the coronavirus pandemic. However middle class Chileans claim there has been no aid or stimulus for this group and therefore targeted the pensions' funds.

Removing funds from the defined contribution Pension Fund Administrators (AFP) system will reduce already low average pension payouts, and shock the local stock, bond and exchange markets, according to the government and mainstream economists, though opinion diverges on how much.

The AFP system was introduced in the 1980s under the dictatorship of Augusto Pinochet and has been the subject of public protest and reform pledges because of low payouts for years.

In a Cadem poll published last week, 86% of respondents said they supported the pension withdrawals, and 82% said they would request access to their funds if allowed.