Argentine pension fund reform proposal gets mixed marks
A proposal by the Argentine government to allow some 11 million people to migrate from the private AFJPs pension funds to the state-run scheme has won widespread praise for the sake of freedom of choice, but also criticism, with observers telling MercoPress that it has been timed ahead of the October’s presidential vote, aimed at “funding” the government even a step towards re-estatization.
The administration of centre-left Peronist President Néstor Kirchner on Monday unveiled a bill — yet to be sent to Congress which, however, is controlled by Kirchner’s Victory Front — whereby contributors to the AFJPs system known as “capitalization system” may go back to the state-run “reparto” (distribution) scheme. And subsequently opt between the two systems every five years.
A 1994 pension scheme reform introduced the AFJPs in Argentina. Under that reform, those opting for an AFJP could not go back to the state-run system.
Even the UAFJP, the lobby grouping all the country’s AFJPs, issued a statement admitting that the government’s bill “respects the principle of freedom of choice and fosters an improvement of the schemes.”
Argentines contribute 11 percent of their salaries to the state-run system. Their contribution to the private system was reduced from 11 to seven percent in 2001 to jump-start the economy amid the country’s worst-ever crisis. The UAFJP called for a reinstatement of the 11 percent contribution “out of equity considerations between the two systems.”
The UAFJP lobby defended its scheme saying that it has been a very good “option” for most contributors, adding that part of the funds they manage are reinvested in the country’s economy. The group urged the government to prevent unbalances between the two systems by seeking to reduce costs for contributors “without hampering the services they get.”
The bill also sets a cap of one percent to fees charged by AFJPs on contributors’ salaries versus the current about three percent. The AFJPs manage around 30 billion dollars in funds.
Observer Rosendo Fraga told MercoPress: “The government’s decision has two goals. There is an ideological component aimed toward a more state-run model by reversing the privatization of the pension funds system introduced in the 1990s, and there is also an interest in increasing its own availability of funds in an electoral year.”
The government has dismissed criticism arguing that those who made it were being paid by the AFJPs.
Observer and pollster Ricardo Rouvier said: “More than 50 percent of the population are highly favourable to having freedom to choose. There is a change regarding the 1990s, when the AFJPs system was very welcome amid Menem’s tenure. Many people are now disenchanted.”
Neocoservative Peronist president Carlos Menem (1989-1999) privatized virtually every state-run company and opened up the economy in a sweeping drive that initially fostered strong growth but, at the cost, many say now, of skyrocketing indebtedness that ultimately contributed to plunge Argentina in a deep crisis.
Since taking office in 2003 Kirchner has been seeking to revert many of Menem’s decisions and to restore state control on different areas. He is expected to seek re-election in October.
Rouvier told MercoPress that more than half of the population would like public services to going back to state control, however, he warned that they also would like to continue having the same quality of services they have now.
“They don’t want to go back to the old ENTEL phone company or to the 1980s. As for the state, it would find difficult to match the efficiency of private firms, but it should try,” Rouvier said.
He added that there may be some degree of ideology in the government’s proposal to restructure the pension system “but never to the degree of Venezuelan President Hugo Chávez.”
Chávez is a close ally of Kirchner.
What Menem and his Economy Minister Domingo Cavallo did by introducing the AFJP system was to deprive the state from a large chunk of resources and Kirchner’s decision aims to recover part of those funds, Rouvier said. “However, he added, it remains to be seen how the system will work.”
Mariano Recalde, a lawyer who advises the General labour Confederation (CGT), Argentina’s largest umbrella union, told MercoPress that the government’s move entails a deep restructuring of the pensions system “but I don’t see it going in the way to full re-estatization, at least for the time being, because if that had been the intention, the government could have done it altogether.
“However, there would be no obstacle, if there is a massive migration to the state-run system, for the system ending being mainly state-run with just a private complement.”
Social welfare is based on the principle of solidarity, something that the AFJPs system is lacking, Recalde said, adding that contributors to a AFJP just gets back the money they have has contributed whereas contributors to the state-run system are guaranteed a minimum pension for everybody out of everybody’s contribution.
Asked whether there could have been electoral considerations regarding the timing of the announcement, he said: “Every time a government announces a measure that favours people critics say that that is demagoguery, but that criticism in itself is the evidence that the measure is good for the people.”
Recalde admitted that past governments have made an ill use of pensioners’ funds, but he added: “Here there is no option, because the alternative is to leave people’s pensions in the hands of banks (which own the AFJPs) and which have the explicit aim of making a profit, not fostering of solidarity as the state-run system.”
Among the main owners of the AFJPs are HSBC, the Santander-controlled Banco Río, Banco Galicia, BBVA Banco Francés, the MetLife insurance group, and also Banco Nación and Banco Provincia, which are both state-run.
Recalde said that the reform not only would allow freedom of choice and put the two systems on an equal footing, but would also deprive the banks that own the AFJPs from a hefty insurance business.
A very important feature of the bill fostered by the government is that those who enter the labour market and don’t make up their minds as to which of the system adopt within 90 days, will go now to the state-run system until they decide to make a final option, Recalde said.
In the old system those making no choice went automatically to the private system with the aggravating factor that once they were there they could not go back to the state-run system.
Artemio López, a pollster who is close to the government, said that the same that past
governments resorted to state-run pensions for “funding”, the private system has not been free of the whims of politicians, recalling, for instance, when Cavallo forced AFJPs to channel a large chunk of the resources they were managing to buy Argentine debt bonds.
The economic crisis that blew up in late 2001 forced the country to declare the world’s largest-ever debt default. Later Kirchner forced creditors of bad debt to “swallow” a hair cut that drove the debt to about 125 billion dollars from nearly 200 billion. Many of those creditors were Argentine bond holders.
López admits, however, that it cannot be ruled out the possibility that the “timing” for the pension system proposal may be linked to the October election in which most observers predict that whoever may be the ruling party candidate, he/she will get a first round victory, in the face of a widely dispersed opposition.
“Ahead of an election either the government or the opposition may seek to get an advantage from any announcement,” he said.
López added that 87 percent of the people have a very critical opinion of the private AFJP system and they see in a very good light the possibility to have freedom to choose.
As for a possible full re-estatization, he said: “I don’t see that the government may be aiming in the short- to the mid-term to re-estatize the pension system.
“But what may occur in my view is that there could be a massive migration of low-income people to the state-run system awhile high-income people could stay within the private system. If that happens, new imbalances could emerge.”
He also warned that a sheer reform of the pension system will not solve per se the problem of Argentine pensioners in a country where 43 percent of the economically active workforce has an informal job. “Even half of the people registered with the AFJPs are in a high degree of arrears in their contributions do to having lost their jobs, or low salaries.”
López praised the government’s recent decision to incorporate to the state-run system 800,000 people who having reached retirement age could not apply for pensions because, mainly due to the economic crisis, they failed to make the required contributions.
Guillermo Háskel – MercoPress - Buenos Aires
The administration of centre-left Peronist President Néstor Kirchner on Monday unveiled a bill — yet to be sent to Congress which, however, is controlled by Kirchner’s Victory Front — whereby contributors to the AFJPs system known as “capitalization system” may go back to the state-run “reparto” (distribution) scheme. And subsequently opt between the two systems every five years.
A 1994 pension scheme reform introduced the AFJPs in Argentina. Under that reform, those opting for an AFJP could not go back to the state-run system.
Even the UAFJP, the lobby grouping all the country’s AFJPs, issued a statement admitting that the government’s bill “respects the principle of freedom of choice and fosters an improvement of the schemes.”
Argentines contribute 11 percent of their salaries to the state-run system. Their contribution to the private system was reduced from 11 to seven percent in 2001 to jump-start the economy amid the country’s worst-ever crisis. The UAFJP called for a reinstatement of the 11 percent contribution “out of equity considerations between the two systems.”
The UAFJP lobby defended its scheme saying that it has been a very good “option” for most contributors, adding that part of the funds they manage are reinvested in the country’s economy. The group urged the government to prevent unbalances between the two systems by seeking to reduce costs for contributors “without hampering the services they get.”
The bill also sets a cap of one percent to fees charged by AFJPs on contributors’ salaries versus the current about three percent. The AFJPs manage around 30 billion dollars in funds.
Observer Rosendo Fraga told MercoPress: “The government’s decision has two goals. There is an ideological component aimed toward a more state-run model by reversing the privatization of the pension funds system introduced in the 1990s, and there is also an interest in increasing its own availability of funds in an electoral year.”
The government has dismissed criticism arguing that those who made it were being paid by the AFJPs.
Observer and pollster Ricardo Rouvier said: “More than 50 percent of the population are highly favourable to having freedom to choose. There is a change regarding the 1990s, when the AFJPs system was very welcome amid Menem’s tenure. Many people are now disenchanted.”
Neocoservative Peronist president Carlos Menem (1989-1999) privatized virtually every state-run company and opened up the economy in a sweeping drive that initially fostered strong growth but, at the cost, many say now, of skyrocketing indebtedness that ultimately contributed to plunge Argentina in a deep crisis.
Since taking office in 2003 Kirchner has been seeking to revert many of Menem’s decisions and to restore state control on different areas. He is expected to seek re-election in October.
Rouvier told MercoPress that more than half of the population would like public services to going back to state control, however, he warned that they also would like to continue having the same quality of services they have now.
“They don’t want to go back to the old ENTEL phone company or to the 1980s. As for the state, it would find difficult to match the efficiency of private firms, but it should try,” Rouvier said.
He added that there may be some degree of ideology in the government’s proposal to restructure the pension system “but never to the degree of Venezuelan President Hugo Chávez.”
Chávez is a close ally of Kirchner.
What Menem and his Economy Minister Domingo Cavallo did by introducing the AFJP system was to deprive the state from a large chunk of resources and Kirchner’s decision aims to recover part of those funds, Rouvier said. “However, he added, it remains to be seen how the system will work.”
Mariano Recalde, a lawyer who advises the General labour Confederation (CGT), Argentina’s largest umbrella union, told MercoPress that the government’s move entails a deep restructuring of the pensions system “but I don’t see it going in the way to full re-estatization, at least for the time being, because if that had been the intention, the government could have done it altogether.
“However, there would be no obstacle, if there is a massive migration to the state-run system, for the system ending being mainly state-run with just a private complement.”
Social welfare is based on the principle of solidarity, something that the AFJPs system is lacking, Recalde said, adding that contributors to a AFJP just gets back the money they have has contributed whereas contributors to the state-run system are guaranteed a minimum pension for everybody out of everybody’s contribution.
Asked whether there could have been electoral considerations regarding the timing of the announcement, he said: “Every time a government announces a measure that favours people critics say that that is demagoguery, but that criticism in itself is the evidence that the measure is good for the people.”
Recalde admitted that past governments have made an ill use of pensioners’ funds, but he added: “Here there is no option, because the alternative is to leave people’s pensions in the hands of banks (which own the AFJPs) and which have the explicit aim of making a profit, not fostering of solidarity as the state-run system.”
Among the main owners of the AFJPs are HSBC, the Santander-controlled Banco Río, Banco Galicia, BBVA Banco Francés, the MetLife insurance group, and also Banco Nación and Banco Provincia, which are both state-run.
Recalde said that the reform not only would allow freedom of choice and put the two systems on an equal footing, but would also deprive the banks that own the AFJPs from a hefty insurance business.
A very important feature of the bill fostered by the government is that those who enter the labour market and don’t make up their minds as to which of the system adopt within 90 days, will go now to the state-run system until they decide to make a final option, Recalde said.
In the old system those making no choice went automatically to the private system with the aggravating factor that once they were there they could not go back to the state-run system.
Artemio López, a pollster who is close to the government, said that the same that past
governments resorted to state-run pensions for “funding”, the private system has not been free of the whims of politicians, recalling, for instance, when Cavallo forced AFJPs to channel a large chunk of the resources they were managing to buy Argentine debt bonds.
The economic crisis that blew up in late 2001 forced the country to declare the world’s largest-ever debt default. Later Kirchner forced creditors of bad debt to “swallow” a hair cut that drove the debt to about 125 billion dollars from nearly 200 billion. Many of those creditors were Argentine bond holders.
López admits, however, that it cannot be ruled out the possibility that the “timing” for the pension system proposal may be linked to the October election in which most observers predict that whoever may be the ruling party candidate, he/she will get a first round victory, in the face of a widely dispersed opposition.
“Ahead of an election either the government or the opposition may seek to get an advantage from any announcement,” he said.
López added that 87 percent of the people have a very critical opinion of the private AFJP system and they see in a very good light the possibility to have freedom to choose.
As for a possible full re-estatization, he said: “I don’t see that the government may be aiming in the short- to the mid-term to re-estatize the pension system.
“But what may occur in my view is that there could be a massive migration of low-income people to the state-run system awhile high-income people could stay within the private system. If that happens, new imbalances could emerge.”
He also warned that a sheer reform of the pension system will not solve per se the problem of Argentine pensioners in a country where 43 percent of the economically active workforce has an informal job. “Even half of the people registered with the AFJPs are in a high degree of arrears in their contributions do to having lost their jobs, or low salaries.”
López praised the government’s recent decision to incorporate to the state-run system 800,000 people who having reached retirement age could not apply for pensions because, mainly due to the economic crisis, they failed to make the required contributions.
Guillermo Háskel – MercoPress - Buenos Aires
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Friday, February 02, 2007
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