Speaking at La Moneda Palace today, Treasury Minister Ignacio Briones today announced the Economic Recovery and Employment Protection Plan. This includes a series of measures to strengthen employment protection mechanisms, public investment, support for micro, small- and medium-sized enterprises (MSMEs) and the reconstruction of Chile in an effort to boost economic reactivation.
The new measures in the Economic Recovery and Employment Protection Plan total US$4.8 billion and are in addition to the previously announced capitalization of the state-owned bank BancoEstado and loan support for MSMEs via CORFO, bringing the total to US$5.5 billion.
Before announcing the details, the Treasury Minister emphasized that Chile’s monthly index of economic activity (Imacec) for October had fallen by 3.4% and said that the impact of Chile’s recent events is much greater than anticipated.
“Economic activity contracted to an extent that is only compatible with years of economic crises that have ended in recession. While unemployment figures do not yet reflect the weaker economy, we must act urgently to attenuate the negative impact of this shock on employment and families, especially the most vulnerable,” said the Minister.
Minister Briones explained that the impact on the economy is more than just numbers. “It means that thousands of companies and jobs are at risk today, which strongly impacts many of our fellow Chileans. Small- and medium-sized enterprises have been particularly impacted, which is why we are including another urgent social priority today: employment protection,” he emphasized.
Ignacio Briones also issued a call for unity. “I want to issue a call, an invitation to create a shared social roadmap. For many years we failed to fully see and empathize with pressing demands (...) and it is now time to definitively change course and draft a new shared social roadmap that enables us to continue making progress in a credible and responsible manner. We cannot dishonor the expectations that the people of Chile have placed on us. This agenda, this shared social roadmap, must be a priority,” he emphasized.
Measures in the Agenda
The Economic Recovery and Employment Protection Plan totals US$5.5 billion, comprised of US$3.025 billion in increased public spending, US$1.950 billion in MSME support and US$525 million for other initiatives.
Minister Briones explained that all these measures are primarily transitory in nature and concentrated on supporting job creation, directly and indirectly, through public investment and support for small businesses.
The Treasury Minister added that the agenda is expected to generate at least 100,000 new jobs next year.
Given the strong focus on employment, an employment protection mechanism will also be created. In concrete terms, when companies can demonstrate that their business or work site has been impacted by the crisis, employers and employees affiliated with the unemployment insurance system can agree to shorten work schedules. Those workers would have access to complementary income via unemployment insurance.
Unemployment insurance coverage will be increased. For example, the replacement rate will be 10 percentage points of the first three withdrawals for indefinite contracts and for the first two withdrawals for fixed-term contracts.
This agenda also includes accelerating the transition of the solidarity component of pensions.
Support for MSMEs
The Minister listed a series of initiatives to support MSMEs that have been impacted by violence.
Among them, he highlighted early income tax refunds for MSMEs whose sales in October were lower than their 12-month historical average. In concrete terms, these MSMEs will receive early refunds of between 20% and 75% of the simple average of total Monthly Tax Prepayments (PPM) paid through to September this year, and the tax refunds received for the last two years. This will free up resources of up to US$536 million and benefit more than 500,000 MSMEs.
He also reported that these MSMEs will be able to pay the value added tax (IVA) due for the months of October, November and December in up to12 installments at a real interest rate of 0%, with the first payment due in February 2020. This measure involves freeing up resources of up to US$564 million.
A special regimen of donations for MSMEs will also be created.
All of this is in addition to the approved capitalizations of the state-owned bank BancoEstado for US$500 million, Fogain (general investment guarantee fund) for US$200 million, and Fogape (general small investment guarantee fund) for US$100 million, making it possible to leverage US$1.5 billion in loans. In total, these three measures will enable small businesses to access loan funds totaling approximately US$9.0 billion.
The Treasury Minister announced that these measures will be submitted to Congress through proposed legislation for immediate debate.
Increased public investment
Furthermore, Minister Briones announced a series of initiatives to boost reconstruction and economic reactivation through increased public investment of more than US$3.0 billion. He noted plans to undertake reconstruction projects totaling US$921 million, excluding the US$380 million already approved in the budget for metro repairs.
Similarly, progress will be made on investment projects in areas outside Santiago: the Santiago-Melipilla train, potable water projects, housing construction, neighborhood subsidies and improvements, investment in education and other initiatives.