Pension system: An inconvenient truth about Chile (the reason why Bitcoin is the best option).

LeoFinance
6 Min Read
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I have always heard or read references about Chile that attribute to it the virtue of being qualified as "the Latin American miracle", judging by its outstanding economy in a region characterized by its failures in such matter. But since mid-November 2020, the walls of Santiago, the country's capital city, have been adorned with multicolored graffiti to express the grievances of the population.

Today the Chilean people are still in the streets with the same demand: "NO TO THE AFP", the name of the pension system managed by six private administrators that were developed directly by the dictatorship of Augusto Pinochet under the direct participation of Jose Piñera, brother of the current president Sebastían Piñera and a group of neoliberal technocrats whom the media baptized Chicago Boys, for their formation under the patterns of the principles of the neoliberal school of Milton Friedman.

The capitalized pension system (AFP), a savings mechanism that Chilean workers are forced by law to join, has channeled billions of dollars to that country's financial model. The military dictatorship that took control of Chile for 18 years was an excellent opportunity for the application of this neoliberal-style experiment. The joke of the matter lies in the fact that the dictator Pinochet never trusted in this type of actions to be applied in the military world, only for civilians.

During the nineties, Chile was promoted in important world media as the successful economic model to follow, especially for this particular mandatory pension system, being the Piñera family the epicenter of this Hollywood star-worthy exposure. All the international banking world is pondering Chilean pensioners as the highest income earners in the world, a "democratic" solution to the problems of pay-as-you-go systems in times of aging and fiscal limits.

According to its creators (the family of the current president and many of his ministers) the AFP is conceived so that it is enough for each worker to contribute only 10% of his salary to the system to have a reasonable replacement rate, the percentage of the previous salary that is charged as pension (according to its designers 80%). Instead of transferring the responsibility from one generation to another under state management, theoretically the funded system would generate a stock of savings that would drive the financial system and the capital markets. In this way the institutions would return the favor to the Chilean people with good pensions. In the mid-1990s, everything seemed to be going smoothly. The AFPs were earning a return of 12.6% per year.

More than 25 years after the implementation of this system, only one point has been fulfilled from what the technocrats designed: US$ 230 billion dollars (70% of the Chilean GDP) went directly from the workers' savings to the creators of the model: banks and large local and multinational companies who make up an incredible oligarchy. I don't know about you but in my town they call this feudalism and those AFPs is just a short form of saying PONZI SCAM.

When you review the huge profits obtained by the powerful feudalist groups, sorry, Chilean and foreign businessmen, you realize the horrible revolving door that the State created together with the private sector to give structure to the neoliberal model in Chile, saving the differences this is as totalitarian as the Chinese regime.

As if this were not enough, an important part of the funds managed by the PFAs are dedicated to the payment of public debt, which has helped to shield an economy dependent on copper exports and vulnerable to volatile capital inflows and outflows. The AFPs have recorded excellent rates of return (outside of the funds they manage) of 15%, some US$ 550 million in 2021. The main beneficiaries are large multinational insurers such as the US-based Met Life (75% of the AFP's capital is American).

Perhaps Chilean citizens would have accepted this hyper-profitability of their savings, without taking to the streets, if Piñera's promise of an 80% replacement rate had been kept. This would have meant an average pension of about $1,500 per month right now. But this has not been the case. Quite the opposite. Eight out of ten Chilean retirees receive a monthly pension of only 310,000 pesos (about US$ 300), considering the fact that 50% of workers receive an average of only US$ 150 per month.

On the other hand, like any Ponzi scheme, in order to maintain this pension system, high-paying jobs are needed, which unfortunately does not happen in Chile, since the precariousness of employment is the norm in that country. Most Chileans spend part of their careers as self-employed since it is essential that contributors make regular contributions to generate decent pensions. The reality of the Chilean economy is not compatible with the AFP system since there are many cases of people in their 70s and 80s who have had to return to work because filling this sack requires the contribution of the younger generation and the proliferation of highly paid professionals.

Paradoxically, the creators of this pension system demanded to maintain the patterns designed by the International Monetary Fund, so that the total precariousness of the labor market is a non-negotiable condition, but the pension system they proposed as an alternative to the public model does not work without stable work. On the other hand, in order to move from the previous system to the AFP, the State had to assume the cost, which was 136% of the GDP, so it had to take funds by cutting or cancelling budgets for health, housing, education and public salaries; all to pay for the transition.

Thinking about the fact that this form of institutionalized slavery is mandatory in Chile and considering that most of the jobs are based on precarious wages, it becomes evident that it is facing towards an obvious collapse, therefore a good way to cut with this feudalism 2.0 is to assume a part of the income in cryptocurrencies, especially Bitcoin given the great virtue of this currency to revalue over time. Any worker who devotes at least 10% of his income to acquire BTC in a minimum of 25 years will be able to count on an important and valuable fund that will allow him to live in dignity from the time of his retirement (or earlier if he so wishes).

It is absurd to keep afloat a pension system that is nothing more than a vile swindle of the worker's salary, maximum when it is mandatory, so applying a fund in function of valuing people's income in function of their individual and family benefit discarding the central power can only be executed with the conscious use of cryptocurrencies, especially Bitcoin, otherwise only slavery and working until you die awaits you.

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