Under Chile’s fiscal institutional framework, fiscal policy is guided by the Structural Balance, which reflects the trend financial situation of the central government, net of the effect of cyclical fluctuations in economic activity, the copper price and other factors of a similar nature.
In this context, the Economic and Social Stabilization Fund (FEES) provides the central government with an additional source of financing for fiscal deficits and the amortization of public debt. Although Chile has broad access to international financial markets on competitive terms, the FEES has the advantage of allowing it to finance fiscal needs, reducing recourse to public borrowing.
As of end-September 2019, the FEES had a market value of US$14,163.61 million.
In the second quarter of 2019, US$563.89 million, equivalent to 0.2% of GDP in 2018, was withdrawn from the FEES to finance the mandatory annual contribution to the Pension Reserve Fund (FRP).
Mandatory contributions to the FRP from the FEES were made in 2014-2016 and 2018.
In light of the updated macro-fiscal outlook, presented during debate of the budget in the National Congress, and of financing needs for the current year, an additional US$1,000 million will shortly be withdrawn from the FEES and will be converted into pesos according to the Treasury’s cash needs.
In addition, as mentioned in the recent discussions of the Joint Budget Commission, the more challenging economic outlook for 2020, with fiscal revenues below what was initially anticipated, means that a further withdrawal of US$1,400 million from the FEES is envisaged in the early part of 2020. This will also be converted into pesos in line with the Treasury’s cash needs.