Emerging Markets’ Biggest Pandemic Spender Extends Emergency Aid

(Bloomberg) -- Chile will extend emergency cash payments to poor and middle-class families and introduce new subsidies as it looks to put the economic recovery on a firmer footing after multiple waves of the coronavirus.

The program will make final payment in December instead of October, the presidency said in a statement Tuesday. The cash transfers will reach almost 16 million people out of a population of about 19 million people, President Sebastian Pinera told reporters. The government also announced wage subsidies to help create 500,000 jobs.

The cash transfers are a centerpiece of one of the most generous Covid-19 responses in emerging markets, according to the International Monetary Fund. They are also part of the reason why the central bank sees the economy growing up to 9.5% this year, outpacing its regional neighbors.

“We are fully aware that despite improvements, the pandemic and the global recession continue to generate shortages, problems and needs,” Pinera said Tuesday.

The wage subsidies will amount to as much as 250,000 pesos ($320) per month for women and 200,000 pesos for men. The money will be paid on top of the regular income to the people who find formal work this year.

The government will also boost efforts to help small companies, according to the statement.

Generous State

“This is an important plan,” Finance Minister Rodrigo Cerda told reporters. “This is almost $7 billion that is being mobilized.”

Chile’s government has made “additional spending or foregone revenues” worth 14.1% of gross domestic product since the start of the pandemic, compared with 4.7% in Colombia, 9.2% in Brazil and 7.8% in Peru, according to the IMF.

Officials first rolled out the cash transfers in 2020 as Chile grappled with its initial virus wave. The program was prolonged several times and also expanded to include more families after Pinera’s administration faced scrutiny that its emergency measures were filled with fine print.

Read more: Chile Raises Borrowing Plans by $8 Billion on Stimulus Spending

Pension Withdrawals

Government allies are betting the extension to payments will head off another round of early pension withdrawals.

Previous withdrawals have drained roughly $49 billion from the funds that represent the bedrock of Chile’s capital markets. On Aug. 11, lawmakers will start discussions on proposals for even more drawdowns which the government opposes.

Since early June, virus infections and hospitalizations have tumbled as Chile forges ahead with one of the world’s fastest vaccination programs. Positivity levels are hovering below 2%, while seven-day case averages have fallen under 1,000 from over 7,000 two months ago.

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