Withdrawal of AFP would increase price of the dollar

Contributors may withdraw up to 4 UITs (S/. 18,400) of the funds from AFP, after the publication of the law by the official newspaper of El Peruano. The Superintendency of Banks (SBS) has a maximum period of 15 working days to issue a schedule that indicates the withdrawal request dates for each contributor.

Javier Pineda, CEO of Billex, a Peruvian digital platform that -through a trust- connects people and companies to buy and sell dollars with a competitive exchange rate, suggests that 25 billion soles would be released in the market, which would take many Peruvians to convert their amounts into dollars in the face of uncertainty.

There can be up to three possible effects on the movement of the exchange rate. The first will impact through the pension fund managers, since in order to comply with the required withdrawal they will have to sell part of their portfolio of bonds in soles, impacting on a lower yield, with this lower attractiveness foreign investors would sell their bonds in soles to leave the country, buying dollars and thus pushing the exchange rate up.

LOOK: What you should know about the schedule to request withdrawal from the AFP

The second could create a downgrading of Peru’s credit rating in the face of this measure that hits the private pension system, warned by international risk rating companies; This would have a negative impact on the economy, making credit more expensive and also increasing the exchange rate. A third effect would come from users who would choose to change their salaries in soles to dollars due to political instability.

“The effects of this measure can affect the price of the exchange rate and also increase the cost of credit in general. Measures of this type can harm the economy in general in the medium term, in a context that is already complicated for the country, which has an expectation of growth of only 2% for this year”Pineda commented.

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