Chile’s celebrated $200bn private pensions system has served as a model for dozens of emerging markets since it was introduced in the 1980s. Now, it faces an existential crisis as public support for the model fades and populist politicians allow savers to withdraw funds during the coronavirus crisis.

The lower house of congress voted to allow Chileans to withdraw another 10 per cent of their pension funds last week, following a similar measure in July that saw withdrawals of some $17bn.

Congress could yet approve a third withdrawal next year, putting at risk a pool of savings that has driven the growth of Chile’s capital markets and jeopardising future returns. 

Investors are increasingly concerned that the country’s famed economic model that has driven decades of steady growth is disintegrating. 

“Chile is a country in Latin America but it is not a Latin American country because there [have been] no attacks on investors or crazy economic policies. This is exactly what is at risk now,” said a senior pensions industry executive familiar with the Chilean market.

Since the outbreak of violent protests late last year demanding greater equality in Chile — with inadequate pension payouts a particular bone of contention — the pro-business government of President Sebastián Piñera “has presided over a degradation of institutional quality of such magnitude that we wonder what the future will be”, added the executive.

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