Pension Funds: Big Business in Crisis-Ridden Argentina
By Marcela Valente
[the article, dated Sept. 3, 2001, is reprinted with permission of Inter Press Service]
Pension funds have turned out to be a safe source of high returns for private administrators in Argentina, but the value of workers' pensions has declined, and some economists blame the system for the fiscal deficit that has driven the economy to the verge of collapse.
Argentina's Administratoras de Fondos de Jubilaciones y Pensiones (AFJPs) were created in 1994 on the initiative of Domingo Cavallo, who was then serving as economy minister in the government of Carlos Menem (1989-1999) and was named to the same post last March by President Fernando de la Rua.
At that time, Cavallo said the AFJPs would lead to an increase in the retirement benefits of future pensioners, free the state from the burden of the social security system, and create a new market of capital for investment in productive areas. But economic analysts say none of that has yet occurred.
The AFJPs receive 11% of the monthly salaries of employees, of which they take nearly one-third in commission. The rest is invested in certificates of deposit, stocks, or public bonds.
The statistics indicate that 88% of wage-earners in Argentina, or around nine million people in this country of 37 million, are affiliated with AFJPs today, although not all of them contribute regularly.
Unemployment, which stands at above 16% of the economically active population (EAP), and the increasing numbers of workers moving into the informal labor market have affected the AFJPs.
But the AFJPs currently administer more than US$25 billion, equivalent to 8% of the country's GDP, and their net earnings totalled US$196 million last year. Meanwhile, the value of the deposits of account-holders has steadily declined.
The resources that the AFJPs receive--US$1.3 billion last year alone--are of such magnitude at this time of crisis that legislators have asked the government to force the private pension-fund administrators to invest in the productive sector or to reduce the commissions they charge, to leave more cash in the hands of workers to boost consumption and help revive the sorely flagging economy.
Only 12% of Argentine workers remain in the state social security system, and the contributions of employers and employees do not suffice to cover the outgoing retirement payments.
The public pensions system entered into crisis in the 1990s, a result of the poor administration of funds and the rise in life expectancy, unemployment, and precarious employment, all of which led to a serious lack of financing and a sharp decline in the value of pensions.
The reform of the pensions system was implemented by Cavallo with great fanfare and promises that everyone would benefit. Although signing up with a private pension-fund administrator was not compulsory, most workers opted for one of the 27 AFJPs that existed in the mid-1990s.
That meant the state stopped receiving the contributions of 88% of wage-earners, although it could not stop paying the pensions drawn on the old system, which meant it had to start tapping tax revenues to cover them. That unbalanced the budget--a problem that has been aggravated by the decline in economic activity during the past three years.
In the end, it has mainly been the banks that have benefitted. Banks own 76% of the 13 remaining private pension-fund administrators.
Labor lawyer Hector Recalde with the Central de Trabajadores Argentinos (CGT), and economist Claudio Lozano with the Asociacion de Trabajadores del Estado (ATE) said the four largest AFJPs form an oligopoly-like structure.
The average commission they charge is 4% of a worker's salary, part of which goes toward flashy publicity campaigns aimed at drawing in new clients. …