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'Social Tsunami' Slams a Top Latin American Economy – The Wall Street Journal

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The burned ruins of a Walmart supermarket that was set on fire during protests and looting in Arica, Chile.


Photo:

Marcela Bruna for The Wall Street Journal

ARICA, Chile—The

Walmart

store here in the country’s remote northern desert would normally be packed full of shoppers buying toys and food for the holidays.

Instead, what’s left this week are charred, twisted metal beams and busted up concrete in the aftermath of nationwide, antigovernment unrest that has caused the sharpest economic contraction in a decade in one of Latin America’s most prosperous nations. The store, which helped anchor businesses in the neighborhood, was one of 18 of Walmart’s stores in Chile—part of the Lider chain—destroyed by the looting that has accompanied two months of mass protests.

“It looks like a war zone,” said

César Martínez,

whose company was contracted to clear debris after the store was sacked and torched, leaving one person dead, in November. “Thirty days ago, this place was selling bread. It’s madness.”

Few expect a quick recovery in this country of 18 million people. The unrest has paralyzed Chile’s economy, which contracted 3.4% in October, the worst showing since the 2009 global financial crisis. The central bank cut its outlook for next year’s growth to between 0.5% and 1.5%, after previously projecting a 2.75% to 3.75% expansion. Economic output will hit just 1% this year, down from 4% in 2018.

While protests have dissipated with Christmas approaching, the economic fallout is just beginning, experts say. Chile is now embroiled in political uncertainty after the government agreed to hold a referendum in April on a new constitution. Leftist activists seek to overturn the nation’s free-market economic model in favor of one they would like to be more equitable and offer more social support.

César Martinez worked on the site of the fire that gutted the Walmart in Arica.


Photo:

Marcela Bruna for The Wall Street Journal

That is having an impact on business plans in what had been a stable Latin American nation. A December poll by Cadem found that 85% of business leaders have put investments on hold. About 61% of executives are pessimistic about Chile’s future as they brace for a recession and higher unemployment.

“This is a social tsunami. It will create a more permanent damage to the economy,” said

Ricardo Escobar,

a former head of Chile’s tax agency whose law firm in the capital, Santiago, works with business owners. “They will not invest until they see a clear future.”

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The chaos began Oct. 18 in Santiago when the biggest protests in a generation erupted over an increase in subway fares and quickly expanded to a range of grievances, from anger over meager pensions to shoddy health care and schools. The government backed down on the fares. Most protests were peaceful, but violent groups wreaked havoc, prompting President

Sebastián Piñera

to cancel an international summit that would have brought thousands of foreigners to the capital, including President

Trump.

Hotels were set on fire, restaurants were vandalized and subway stations were destroyed, causing $370 million in damage to the modern and efficient metro. The Santiago city center was trashed, with graffiti-covered walls reading “organize your rage.”

The demonstrations quickly spread across this 2,600-mile-long sliver of a country. In picturesque towns in southern Patagonia, banks and public property were vandalized. Here in Arica, Chile’s northernmost city some 1,300 miles from Santiago, protesters tore the heads off sculptures honoring war heroes, and tourism collapsed.

A looted supermarket in Santiago, on Nov. 28.


Photo:

claudio reyes/Agence France-Presse/Getty Images

In total, the government says 14,800 businesses were damaged and 100,000 jobs were lost across the country in the past two months as business and consumer confidence tanked.

“No one escaped this,” said

Manuel Melero,

president of the National Chamber of Commerce. “These are billions of dollars in losses.”

In response, Mr. Piñera, a center-right 70-year-old former businessman, has announced a $5.5 billion stimulus package to rebuild infrastructure and help small businesses. The boost in public spending is expected to drive the fiscal deficit to 4.4% of GDP in 2020, one of the biggest since Chile’s return to democracy 30 years ago.

The central bank is stepping up interventions to support the peso after it depreciated to a historic low. It could sell as much as $20 billion, according to the central bank, including a quarter of its reserves.

Economists say Chile is in a strong position to recover. It has little debt and its copper mines, by far the world’s biggest, weren’t affected by the turmoil. Officials say they are working to address protester demands, including increasing pensions, that would reduce high inequality.

“There is a social agreement to make Chile a more-just country,” Economy Minister

Lucas Palacios

told The Wall Street Journal. “The process to overcome this crisis that began on Oct. 18 is starting to bear fruit.”

Stores that were set on fire by antigovernment protesters in Santiago, on Oct. 29.


Photo:

Rodrigo Abd/Associated Press

The stimulus package is aimed at helping people like

Hector Soto,

whose pharmacy in southern Santiago was ransacked. The 33-year-old father of two was at home when looters stole nearly all the merchandise, even a digital scale.

“That left a mark on us,” said Mr. Soto, who has reopened but said sales are half of what they would normally be. “What really hurt was the level of destruction, the capacity to do damage.”

A December poll by COES, a Santiago-based think tank, said 65% of Chileans support the continuation of protests. The poll found that 89% of Chileans planned to back a new constitution. The protests have weakened, but political analysts expect a strengthened resumption in March, the end of the Southern Hemisphere’s summer break and before an April referendum on whether to replace a constitution drafted during the Pinochet dictatorship.

Politicians will struggle to maintain order as leaders across the political spectrum have lost much of their legitimacy during the crisis, analysts say. Mr. Piñera’s approval rating fell to 13%.

“This process is not finished,” said Marta Lagos, a pollster and political analyst. “There is not one single soul who can unify everyone to help Chile get out of this crisis.”

The uncertainty in Chile’s economy weighs on

Rodrigo Hevia,

whose business, supplying  restaurants with imported liquor, has suffered so much he has laid off workers. The 27-year-old and his wife have decided to hold off on buying a home and having children.

“We’re going to have to wait a bit because nothing is clear,” he said. “I’m not sure if my business is going to make it through next year.”

Alejandra Godoy lives next to the Walmart that was destroyed in Arica.


Photo:

Marcela Bruna for The Wall Street Journal

People are grappling with similar anxiety in Arica.

Alejandra Godoy

said she has barely worked at her beauty salon, located behind the destroyed Walmart. At night, she still hears people scavenging metal and anything else of value.

“Clients don’t want to come here because they’re scared,” said Ms. Godoy, whose neighborhood now plans to buy a community alarm system and security cameras.

Write to Ryan Dube at ryan.dube@dowjones.com

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Canadian dollar gives back much of weekly gain as oil slides

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar weakened against its U.S. counterpart on Friday, giving back much of this week’s gains, as new pandemic curbs in China weighed on oil prices and data added to evidence of Canada‘s economy slowing in December.

The loonie was trading 0.7% lower at 1.2718 to the greenback, or 78.63 U.S. cents, pulling back from a near three-year high on Thursday at 1.2590.

“The stalled move lower in the USD around the 1.26 level again leaves the CAD in a weak position on the face of it for the week ahead,” FX strategists at Scotiabank, including Shaun Osborne, said in a note.

Speculators have cut their bullish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission showed. As of Jan. 19, net long positions had fallen to 10,326 contracts from 12,073 in the prior week.

The currency traded in a range of 1.2633 to 1.2740 on Friday. For the week, it was up 0.1% as investors bet on hefty U.S. stimulus from newly inaugurated President Joe Biden and the Bank of Canada opted against cutting interest rates.

Canadian retail sales jumped by 1.3% in November, much more than expected, but preliminary figures for December suggest a sharp drop as novel coronavirus restrictions were re-imposed, Statistics Canada said.

U.S. crude oil futures settled 1.6% lower at $52.27 a barrel on worries that restrictions in China, the world’s biggest oil importer, to contain a fresh wave of COVID-19 will crimp demand. Oil is one of Canada‘s major exports.

Global shares slipped off record highs as data showed euro zone economic activity shrinking markedly in January, while Canadian government bond yields were lower across much of a flatter curve.

The 10-year fell 2.8 basis points to 0.845%. On Thursday, it posted a 10-month high intraday at 0.892%.

 

(Reporting by Fergal Smith; Editing by Kirsten Donovan and Marguerita Choy)

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India's Economy Shows Signs of Recovery as Virus Cases Decline – Bloomberg

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India’s Economy Shows Signs of Recovery as Virus Cases Decline  Bloomberg



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Joe Biden and the ‘great rebalancing’ of the US economy – Financial Times

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“It’s time to reward hard work in America — not wealth.” That statement from US president Joe Biden is perhaps the most concise expression of the new administration’s economic policy plans. Mr Biden wants to increase the national minimum wage, raise taxes on corporations, and start to tip the balance of power between labour and capital.

The labour share of national income — the amount of gross domestic product paid out to workers, in wages and benefits — has been declining in the US and many other developed countries since the 1980s. The fall since 2000 has been particularly precipitous, leading to stagnant pay, growing inequality and a loss of consumer purchasing power.

But, in many ways, this is a difficult moment for the Biden administration to turn the tide. With unemployment still high due to the pandemic, there is no natural upward pressure on wages. And some economists argue that intervening to raise minimum wages now would discourage hiring.

In addition, many companies that survive the pandemic will be looking to cut costs by replacing workers with technology. Indeed, automation is one of the key factors behind the multi-decade decline in labour’s share of GDP, according to a 2019 study by the McKinsey Global Institute. 

However, there are three big reasons why we may still be at a key inflection point in the US labour-capital divide.

First, the Biden administration has just invoked the Defense Production Act to force the private sector to speed up vaccine production and distribution. This will immediately create more demand for jobs — a trend that could continue beyond the pandemic, as there are bipartisan calls to strengthen domestic supply chains for other pharmaceutical products, and for food. 

Second, there is a trend towards increased unionisation, particularly in high-growth industries such as technology. While the impact of a few hundred Google workers in California forming a union should not be overblown — they are still a fraction of the 100,000 workforce there — it was an important cultural marker. Labour activists are now having similar discussions with other Silicon Valley companies. Amazon workers in Alabama will vote on unionisation in February. At the same time, global labour organisations, such as the International Trade Union Confederation, are pushing the US and EU to include provisions for workers’ rights in any new regulation of Big Tech.

Mr Biden is already using his powers as president to insist that private companies awarded federal contracts use better-paid labour — something unions are lauding.

And the power of organised labour is likely to expand. Some policymakers believe it could play a role in helping individuals — not just workers, but also consumers — recapture the value of their personal data, by forming “data unions”. These unions would act as independent overseers of data pools, realising their commercial value for members. While snippets of data from individuals are not worth much, data pools are — and a more equitable sharing of the intangible wealth held in such data could change the balance of power between corporations and individuals. 

Third, global demographic trends that have disadvantaged workers are finally reversing — and, for labour in the US, this may prove the biggest tailwind of all. As Charles Goodhart and Manoj Pradhan explore in their book The Great Demographic Reversal, the balance of power between labour and capital is all about supply and demand. Over the past four decades, the full entry of baby boomers into the workforce, including a growing proportion of women, plus the rise of China and other emerging markets, has created the largest positive labour supply shock ever seen. Given this, a weakening of labour relative to capital was inevitable.

Now, all of those trends that so depressed wages for 40 years are largely tapped out. Birth rates in most countries are falling. Geopolitical and economic shifts have led some nations, such as China, to create more independent supply chains. Baby boomers are ageing. All of this means that the deflationary headwinds to labour are at last decreasing.

What’s more, an ageing population will make the healthcare industry a huge net job creator. While roles in remote diagnosis — so-called “telemedicine” — can be outsourced to lower-wage countries such as India, most healthcare positions are close-contact jobs that cannot be sent abroad. No wonder six of the 10 jobs that the US Bureau of Labor Statistics expects to grow fastest in the next decade are in nursing, therapy and care services.

These jobs are part of what the new Biden administration has dubbed “the caring economy” — a key economic campaign plank. The president has proposed bolstering not only healthcare for the elderly, but also childcare for families — another task that cannot be offshored. He suggested that the spending might be paid for by closing loopholes in real estate transactions.

Of course, rising labour costs would hit corporate profits. But, in rich countries — where consumer spending is the majority of the economy — business also stands to benefit. There is much to be gained, then, from a rebalancing of power between labour and capital.

rana.foroohar@ft.com

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