Roger Thayer Stone Center For Latin American Studies

Tulane University

Carmelo Mesa Lago discusses Pension Reform in Argentina, Bolivia and Chile

April 9th, 2013

On March 19, 2013, Tulane University's Center for Inter-American Policy welcomed back former Greenleaf professor Carmelo Mesa-Lago for a lecture entitled "Re-reforms of Privatized Pensions in Latin America: Argentina, Bolivia, and Chile." Mesa opened by explaining how eleven Latin American countries conducted structural reforms of their public pension systems during the 1980s and 1990s through either complete or partial privatizations. In the countries examined in his lecture, these reforms produced some positive changes but also several unsatisfactory outcomes that prompted Argentina, Bolivia, and Chile to implement substantial "re-reforms" in 2008 (Chile and Argentina) and in 2010 (Bolivia). Some of the negative outcomes of the initial reforms included the failure to successfully extend coverage for workers: coverage remained stagnant in Chile and Bolivia, while in Argentina it actually decreased by 45 percent. Other problems were the lack of gender equity and the failure of competition between private firms to effectively reduce administrative costs. The financial sustainability of the overall shift to privatized systems proved to be precarious. Transition periods were lengthy and costly, inducing large government debts. Capital returns in all three countries fell, the most drastic drop occurring in Chile, from 21 to 10 percent.

To remedy some of these negative outcomes Argentina, Bolivia, and Chile conducted "re-reforms", strengthening the role of the state in the pension system through diverse approaches. Chile maintained the privatized system but improved it; Argentina integrated the private system into the public system; and Bolivia nationalized its system. In terms of coverage, all three countries improved upon the previous system by extending coverage for the labor force and expanding coverage of non-contributory pensions. All three countries improved gender equity by compensating mothers for time spent raising children. In terms of financial sustainability, Mesa-Lago stressed that Chile had the greatest success in ensuring the long-term viability of its re-reforms, while the sustainability of the Argentine and Bolivian systems remain questionable. Capital returns have been increasing in Chile, while in Bolivia they have been falling, and in Argentina, they are negative. The deficit of Argentina's public fund is expected to increase five-fold over the next forty years, while in Bolivia, no long-term financial projections for the future of the state pensions fund have been established.

Mesa-Lago concluded by underscoring that the re-reforms have remedied many of the flaws of the initial privatization of pensions. He further emphasized that a one-size-fits-all approach with respect to pension reform is untenable because it fails to account for local specificities and internal dynamics of a given country. For example, while all three countries have expanded the role of the state in pensions, not all have pursued the outright closing of the private system. The Chilean case demonstrates how a privatized system can be maintained and substantially improved with state involvement. The case of Argentina demonstrates a successful example of integration of the private system into the public system, with the important caveat that other measures might have to be taken to ensure its long-term financial viability. Mesa-Lago added, as a final note, that it remains to be seen how these re-reforms will influence the complete or partially privatized pensions systems still in place in other Latin America countries.

-Hannagan Johnson