World Bank Urges Better Management of Korea's Public Pension Funds

Korea Times (Seoul, Korea), October 22, 2000 | Go to article overview

World Bank Urges Better Management of Korea's Public Pension Funds


``The World Bank is concerned about the way that Korea's pension funds are managed,'' said, Robert J. Palacios, a senior pension economist at the World Bank during an interview with the Korea Times.

What he is concerned about is that government officials predominantly control the governance structure of the national pension fund.

The pension fund-managing committee in Korea is not independent from the government, and further, there are many politicians in this committee, he said.

According to him, like in the U.S., Canada, Holland, and Ireland, there are governance mechanisms that create an arm's length distance from the politicians and the pension-governing board is completely comprised of private individuals.

``No government officials are members of the governing board in such countries. These private individuals have high-level experience in managing public pension funds,'' he said.

Along with other foreign experts from OECD and other six countries he visited Korea to attend the ``International Conference on Managing Public Pension Reserves,'' sponsored by the World Bank and the Korean Institute for Health and Social Affairs (KIHSA).

The Asia-Europe Meeting Trust Fund financially supports the conference.

In connection with the pension funds governance, he also stressed that pension funds investment, especially into the stock market if country wants to do so, should be made based on financial analysis and risk- adjusted return, which he called ``benchmarks,'' not for other reasons such as political influence. Every country follows the private sector financial portfolio theory, trying to get the best risk-adjusted return.

Even though a country has such a structure, he said, ``On top of that, you need to monitor the performance in a very transparent way.''

Citing the U.S. as an example, where social security trust funds have not been invested into the stock market, he said, ``This arises from concerns about the possibility of politicians wanting to manipulate the stock market, or favor or penalize certain companies. …

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