NEW YORK — The Executive Board of the International Monetary Fund concluded the Financial Sector Assessment Program with Chile, adding that the financial system of the South America nation “functions well overall within a sound regulatory framework.”

In a public statement, the multilateral lender said that the twin shocks of social unrest in late 2019 and COVID-19 endured by Chile “were adeptly managed, thanks to massive and well-coordinated supervisory and fiscal policy responses as well as unprecedented liquidity support from the Central Bank of Chile (BCCh).”

The Financial Sector Stability Assessment, known as FSSA, praised Chile’s pension system as “instrumental in market deepening” and warned that it’s “under threat due in part to a series of withdrawals.” The report recommends “that further pension withdrawals and life annuity liquidations be halted. In addition, pension fund regulation and investment options should be improved to promote long-term investment and minimize excessive portfolio switching.”

The IMF also favors strengthening the “liquidity management framework for mutual funds, the development of the interbank repo market, and a strengthening of central bank risk management practices,” of the South American nation.

“Banks have remained profitable through the crisis, partially supported by central bank financing and government-guaranteed SME lending. The FSAP found that the banking sector is sufficiently capitalized overall and recommended that banks should ensure continued resilience by transitioning to Basel III-compliant capital structures and completing announced capital raises,” the IMF said in the statement.

“Pandemic-related measures should be carefully withdrawn when appropriate. A bank resolution mechanism and deposit insurance should be introduced, and a risk-based capital framework is needed for insurers,” the multilateral lender added.

Chile’s economy is rebounding after contracting 5.8% in 2020 and the International Monetary Fund is projecting the gross domestic product will grow 11% this year.

The country holds second-round or ballotage on December 19 to the elect its next president between José Antonio Kast (Frente Social Cristiano) and Gabriel Boric (Apruebo Dignidad).The new government takes office March 2022.

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