On April 8, Uruguay enacted Law No. 19,874 creating the Covid-19 Solidarity Fund , a precedent seen by the cross-sectional group of 16 economists who proposed a similar formula to address the emergency and post-pandemic recovery in Chile.

The formula of creating a Covid fund, from which up to US $ 12 billion could be drawn  to finance support for  individuals and companies, seeks that the Government does not have to go to Congress for each measure: once the framework of action has been agreed, it would be issue decrees charged to fund financing.

To the Uruguayan

The economist Aldo Lema , born in Uruguay and a member of the Autonomous Fiscal Council (CFA),  explains that the objective of the Covid-19 Fund implemented in his country is "that a part of the expenses related to the pandemic, whether health or protection are essentially transitory. " In this way, he says, the commitment that the greater fiscal impulse is withdrawn when the crisis ends is reinforced.

"In that sense, it complies with some of the principles established by the Chilean CFA so that the political agreement in the making is fiscally sustainable," he says, alluding to the document that the entity published on the subject .

The Fiscal Council proposes to complement the spending rule with a debt ceiling

It adds that, unlike what has been proposed in Chile, neither the Uruguayan government nor its political system defined a predetermined amount for the fund.

Account that the Uruguayan fund is fed by resources from indebtedness, profits from the main state bank ( Banco República , similar to BancoEstado) and the National Development Corporation (similar to Corfo), a tax on the highest salaries of the public sector (from low collection) and even donations and private contributions. 

It should be noted that Uruguay did not accumulate sovereign funds because it never had a fiscal surplus. "That is an important difference, since in Chile a fund of these characteristics would use part of the accumulated assets," he says.

Deadlines and accountability

Uruguay's law is extremely simple: just 12 articles.

Both the Uruguayan law and the proposal of the Chilean economists establish the obligation of the Government to render accounts to the Legislative Power for the use of the fund. In the Uruguayan case, it must occur after the expiration of the instrument, but in the proposal for Chile it is stated that the use of the fund must be reported periodically to the joint Finance commissions of both chambers.

Although in both cases these are temporary funds, in Uruguay the instrument expires according to the Executive's decision, while the local proposal sets a term of 24 months "or earlier if the macroeconomic and sanitary conditions warrant it." It is recommended to define objective parameters for this; for example, some level of the unemployment rate, which is the parameter used by "emergency" employment programs .

The tax lever

Where there are definitely differences is that when Uruguay legislated on this fund, it established a new monthly tax that levies the average and high wages of all authorities and officials of the powers of the State; companies with state participation and people who maintain contracts for personal services with the state (such as leases, among others). The only exception is health personnel who participate in emergency care.

Regarding this new tax, Aldo Lema points out that it is "rather a political signal, which is essentially equivalent to a temporary reduction in high salaries in the public administration. He adds that it is a low collection measure, because it is for a few months.

In Chile the situation is very different. In March, it emerged that the Minister of Finance, Ignacio Briones , proposed to his cabinet colleagues to donate part of their salaries , but the idea was taken as something personal and not as a policy. The tax debate, which after the reform would continue at technical tables to discuss future changes , was postponed due to the crisis.