Good! Last week we debuted with La Agenda and this week we are going with a new name: El Semanal. We liked it better and we stood with this one.
The promise remains: you will find it in your mail every Sunday night or you can read it on Monday mornings on the cover of El Mostrador. And you’ll have opinion, analysis, beatings, what’s being talked about in the corridors of “Sanhattan,” a short interview and reading recommendations.
And now we’re going to what’s calling us: the important thing you need to know to start the week.
1
AFP AND THE CRYING OF BOABDIL
“Don’t cry as a woman what you didn’t know how to defend as a man”
There is only one issue that dominates the political and economic agenda, and even overcomes the pandemic: the political and financial earthquake that sparked the approval by deputies of the withdrawal of 10% of AFP funds. The vote opened a door that will be difficult to close in the Senate, or by La Moneda, and has the potential to be the beginning of the end of a model that governs us since the dictatorship, whose political and economic cost will be high and its outcome totally unpredictable. What there is no doubt is the existence of a large number of Chileans who have already lost faith in the system.
This weekend a cross-cutting group of economists – including Sebastian Edwards, Andrea Repetto and José De Gregorio – warned of the huge fiscal impact of the measure: an increase in debt of up to $18 billion.
It could have been different. Since 2006, the political system, AFPs, economists and entrepreneurs know that the pension system needs deep reform, but no one has wanted to bear the political cost of doing so.
The power system was warned by both the Marcel Commission, which led the current President of the Central Bank in 2006, and the Bravo Commission in 2015. Both commissions were commissioned to make a diagnosis when President Michelle Bachelet was in charge of the Coin.
Mario Marcel outlined the problems of the system: they do not go through the AFPs as such, but they do not take over the rest of the population as it is an “unbalanced system, which placed too many responsibilities on the individual capitalization regime” and that, in addition to its “complexity and its low political legitimacy”, “hardly this system can, on its own, correct the problems and deal with the changes that the country will continue to experience” the economist said in his conclusions.
And he felt that “delaying the planned reform involves not only the risk that problems will not be solved, but that a vicious cycle of frustrations, questioning and conflicts that ultimately threaten the very viability of the system.”
In 2015, economist David Bravo reiterated the urgency of reform and the commission he led included in his report revealing figures of the precariousness in which a significant part of the country lives.
What the experts say. Both the Marcel Commission and the Bravo Commission and the international experts who have studied the Chilean system agree that the basis of any reform is to increase the contribution rate, the retirement age and that the State should increase its contributions to the solidarity pillar, which subsidizes the poorest in the system. That would be the floor from which to start making the changes.
The missed opportunity: when Habitat and Cuprum said NO. One option that picked up many of these recommendations was placed on the table by Michelle Bachelet in the final stage of her second government. The reform included installing a savings pillar outside the management of AFPs and the creation of a state entity, with a Constitutional Organic Law that ensures its independence. The proposal led by the then Minister of Finance, Rodrigo Valdés, was content to increase pensions, left the AFPs as the main fund managers of all Chileans and, being a project of a center-left government, gave the system legitimacy. But two AFPs blocked it: Habitat and Cuprum.
Close to former minister Valdés confirm that he negotiated with Rodríguez-Marengo and that they were indeed very close to reaching an agreement with the industry. It was a missed opportunity. Provida had the support of AFP Modelo, which controls Andrés Navarro.
The industry’s self-criticism. “We’ve been ignoring the obvious for years and now we’re harvesting what we sow,” laments an industry source. It reveals that this intransigence was a frustration for many who wanted change.
That sector points to Willie Arthur’s role as president of the AFP Association. They blame him for for 15 years he stopped everything and they criticize having a former Pinochet minister at the helm of the guild and still on the board of a pension fund manager (AFP Capital, controlled by Colombian financial holding company SURA).
2
THE ENJOY LAW
That’s what casino operators call the bill that the government will send to Congress in the coming days to help the industry. It is an initiative that weeks ago makes noise among the rivals of the company that control the Martinez and Advent family, the American investment fund. There are now also suspicions of a political operation to save her.
Enjoy’s problems. The company is in the midst of a bankruptcy process in the United States to reorganize (Chapter 15), but unlike LATAM (Chapter 11), in the market they have doubts that it will come out of anger. They say the company has management issues, high costs and commitments that will be impossible for it to meet.
Excessive ambitions. As the El Mostrador reported last week, according to the analysis of experts and reports of brokers and risk sorters, his great sins are the expensive he paid for the Casino Conrad de Punta del Este and the millionaire offers he made for the four municipal casinos that were awarded in 2018 (Coquimbo, Viña Del Mar, Pucón and Puerto Varas). What he paid for the Conrad caused his debts to skyrocket and what he offered for municipal casinos tied him up to meet paid millionaires starting in the second half of this year. Only for Coquimbo he offered $15 million and that casino generates an EBITDA that does not justify what was paid, a industry expert says.
Enjoy Law. The bill to be presented by the Ministry of Finance aims to help the industry navigate the crisis that led to the social outburst and pandemic, but in the sector they say they don’t need it and that no operator is in crisis today, just Enjoy. And they claim that the financial problem of this company is structural and is related to two issues that do not affect the other casinos.
For the Chilean Gaming Casino Association (ACCJ), the Hacienda project is a tailor-made suit for Enjoy and targets the undersecretary of the Treasury, Francisco Moreno, and the superintendent of Casinos, Vivian Villagrán.
From the casino operators they accuse that the initiative gives one more year deadline to the current concessions and delays in 12 months the projects granted in 2018, such as those that Enjoy has awarded in Pucón and Puerto Varas (none of these two casinos has started its works). In this way, Enjoy would have until June 2022 for both venues to enter into operation. The company of the Martinez and Advent family is the only one that has this kind of urgency in the midst of its financial difficulties.
The Superintendency of Casinos has $173 million guarantee tickets, which if Enjoy doesn’t deliver on the promise when the licenses were won, it loses them. The Super, in the investigative committee of the Chamber of Deputies, acknowledged that Enjoy has a 75% advance in committed investments. That means it won’t come with 100% on December. That is why the law that drives the Treasury, to give it more time.
Since the rest of the industry they say they do not need a postponement in the deadlines. In fact, members of the Chilean Gaming Casino Association are interested in participating in the next tender and are therefore requiring the authority to carry out the process under the conditions established by law, that is, to be done on the basis of the rules in force at the time the permits were granted in 2005.
You suspect the coin’s hand. In industry and in the market they aim for a political operation behind the “Enjoy Law” and its lobbying capacity. They focus on Sebastián Piñera’s closeness to the Martinez family, emphasize that one of his friends and ex-partner, Ignacio Guerrero, is on the board, and that to solve the problems of Enjoy, another of his close, the “Choclo” Delano, would recover part of his investments, since he is one of the investors who bought bonds issued in Chile by Enjoy.
Sources close to one of the international operators that has been in Chile for a long time, warn that if no changes are made to the government project, they do not rule out suing the State of Chile in ICSID.
The noise of the contract between related. In the market they point to the advisory contract for about 360 million pesos per year that Enjoy signed with a company of Francisco Javier Martínez, chairman of the board. It is transparent in his memory, but it is not clear why the company has to pay the president of it separately, to help… to your own company?
3
NO TACOS OR TIE
These are las things that have come to my ears in recent weeks:
Saieh and his relationship with his Brazilian partners. Itaú Chile’s announcement of the nearly $1 billion accounting loss at June replaced the market. Although the bank says the situation would not affect the bank’s liquidity or its market and credit risk position, everyone wonders how it will affect its controversial minority partner: Alvaro Saieh.
Negotiation between Saieh and Ricardo Marino – Itaú’s visible face – when he sold the bank, includes a commitment to pay a minimum of $370 million a year in dividends. And it was also agreed, in the eventual scenario of not knowing the figure, that Corpgroup has the option to sell Itaú a number of shares of the company equal to the minimum amount of the dividend required and then buy it back in five years.
Saieh needs that flow to pay his debts. In September, there is another $17 million payment of the $500 million bond that its holding company CG Banking has on the market and expires in 2023.
In the market they wonder where you will get the funds to pay for it. As I explained last week, the March coupon payment had to be postponed twice, using a bonus clause and thus avoiding falling into default.
Another reading on the market is that Itaú, since banks in Chile and Colombia are not worth what they were worth at the time of the merger, is prevented from fulfilling the purchase of the part of Saieh in the second country mentioned in the agreed terms. This, because the price is very expensive for what they now say is worth Colombia.
A source inside the Brazilian bank states that, if there was an impact on equity, this would be almost the same magnitude as when Helm bought in December, when he completed his control of the Colombian bank for about US$ 334 million. However, it clarifies that financial agreements are issues between partners that, although linked by the bank, are NOT related to the bank and therefore do not affect it.
The first darts appear against Martín Vidal, the Argentine executive that Horst Paulmann put in charge of Cencosud in the midst of the social outburst. They criticize his dealings with people and who work for Paulmann and not for shareholders. Inside the directory, they’ve already made you know your annoyance. So did an AFP.
4
THREE QUESTIONS TO NICOLAS GRAU
-Three economic measures he would implement if he was appointed Finance Minister with absolute powers to help lift the post-pandemic economy.
-Humanity is playing today and in the coming decades being able to avoid an ecological disaster that threatens future life and Chile must be part of the solution. Therefore, the first step is a transition plan to the green economy that has as its main goal the drastic reduction of greenhouse gas emissions (more than 80% by 2050), which has as its necessary condition the cessation of energy from the combustion of coal, oil and natural gas. According to studies, among other things, this requires an investment in energy efficiency and transformation of the energy matrix of at least 2 points of GDP per year. This productive transformation requires a great deal of fiscal effort, but the good news is that the studies point out that this investment would be the creator of more and better jobs than would disappear as a result of transformation.
The second measure is the restructuring of the various components of our failed and unequal social security system, so that people have equal access to universal and quality social rights. That families have peace of mind in their material life will give dignity, improve the quality of life and generate space for innovation and human creativity.
The third measure is a tax reform to finance the previous two measures. It must be the state size levels of OECD countries that we want to imitate and must collect from the richest 5% income and wealth, with a focus on 1%, as well as the income of the exploitation of natural resources. If we get our economy to start paying better wages, we can also expand the tax base, but with today’s wages, low for the bulk of the population, that’s not possible.
These three measures are not possible to carry out in one Government, but it is a path that we must urgently set out.
-Describe the Chilean model in less than 240 characters.
-Chile was an atypical case of economicly successful neoliberalism. That model was exhausted and the explosion killed him. The pillars of this failure are: ecological crisis, productive stagnation and extreme inequality of income and power.
-Why the Chilean left finds it so hard to build trust with the private sector, and suggestions to solve that dilemma.
-Because, like any leftwe want to distribute power, and great wealth is the main source of power in a capitalist society. That tension is inescapable. In turn, the great wealth in Chile has had a great talent for convincing other entrepreneurs and entrepreneurs that their problems are everyone’s problems (the left has also helped that confusion). Therefore, the dilemma must be specified. First, our problem is with the accumulation of wealth and the power it entails, not with the company – in its various sizes – as a way of organizing production.
Nor with the vast majority of entrepreneurs, where many of them also suffer the power of the greats. Second, we want a productive transformation in which the private world has a key role, but where our comparative advantages cease to be low wages or the destruction of the environment and the dispossessing of local communities. We also want a society where democracy sneaks into all institutions. In short, we want to change many things, because the very existence of this tremendous climate crisis is a good reason for this, but in our project the private initiative is not destroyed, it is only transformed and we believe that it is a better path for most people, whether these workers or entrepreneurs.
5
THE AGENDA OF THE WEEK
The figures and data to follow this week
-On Monday, the Central Bank will publish on its website the Bank Credit Survey in Q2 2020. It will be the first detailed picture of the impact of the pandemic and quarantine on the bank.
-On Tuesday there is a Central Bank Monetary Policy meeting. The statement is published on Wednesday. There is no anticipation of rate change, but there is interest in knowing where Central is going and its view on the economy.
-On Friday China will publish its second quarter growth figures, a report that Chile looks at very carefully in Chile. It is expected to show a robust bounce compared to the first quarter, when the country was paralyzed by COVID-19.
6
COUNTER DIALOGUES
Juan Sutil, Carlos Ingham and the company’s role in postpandemia Chile: “Chileans believed us. There is a new world to adapt to”
In a new chapter of Dialogues of The Counter, the entrepreneur and president of the CPC, Juan Sutil, said that they sinned with pride and should have moved on with the reforms when proposed by Michelle Bachelet. For his part, the former CEO of JP Morgan for the Southern Cone, founding partner of Linzor Capital, Carlos Ingham, warned that two types of entrepreneurs will emerge from this crisis: “He who understands and does not understand”.
You can watch the full program HERE.
That’s it for this week, we meet next Sunday about the same time. If you liked The Agenda, share it with your friends, family or colleagues.
If you have information to share with us, write to me at ivan@elmostrador.cl
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