Evo Morales Raids Bolivia’s Pension Pots
In the middle of the previous century, Chilean Harvard-trained economist José Piñera Echenique came up with a private pensions fund system, implemented in Chile for the first time in 1980. The scheme, based on personal contributions to savings accounts, was so successful that many other countries in the region, among them Argentina, Peru, Colombia, Uruguay, Mexico, El Salvador, and Bolivia, copied it.
2015 marks the beginning of Evo Morales’s third consecutive term as Bolivian head of state. His dubious claim that the 2009 re-foundation of the constitution allowed him to run for a third time has earned him the epithet “the eternal president” among his opponents. Morales himself posed as a “planetary leader” amid imperial pomp at his swearing-in ceremony at the Tiwanaku ruins, now a regular fixture at the start of his presidential terms.
However, the fears of those of us who repudiate care-free government spending, and remain aware of the specter of the resource curse, were also realized early in 2015. We witnessed the crash of oil prices, showing the shaky foundations of the Morales model and leaving the country with a projected 3.6 percent fiscal deficit.
In other words, tiptoed around by the government, all retirement funds were nationalized.
Bolivians have since been wondering where the government will scavenge enough money to carry on the spending bonanza: cash hand-outs, bailing out public companies, and nationwide public works of dubious practical value. Would Morales boost taxes? Or could he even cut spending, signalling the beginning of the end for Evismo?
On January 14, Morales gave his answer with the publication of Supreme Decree 2248, creating the “Public Ministry for Long-Term Social Security.” The decree forces private pensions administrators to hand over all savings and account information to the ministry within 18 months.
In other words, tiptoed around by the government, all retirement funds were nationalized. Morales wiped away Piñera’s private system, ironically sowing the seeds for long-term difficulties and privations for the Bolivian people.
Honorable Retirement in Jeopardy
By 2014, Bolivians had accumulated US$10.5 billion in retirement funds — around 32 percent of GDP, or 75 percent of the country’s international reserves. For a socialist government whose finances are running out of control, it’s nothing short of tempting.
The decree stipulates the ministry’s main posts will be chosen by the minister for finance and economy: that is, the executive branch. Its top employees will earn monthly salaries of 70,000 Bol. (around US$10,000), 50,000 Bol., and 30,000 Bol. Furthermore, the institution is permitted to invest up to 50 percent of all funds abroad, and the remaining 50 percent in Bolivian state companies.
The first problem is that those in charge of managing Bolivians’ retirement funds will be appointed through political arrangements, and will inevitably respond to the interests of the Morales administration.
Further, their exorbitant salaries have no basis in the Bolivian labor market — the minimum wage is 1.440 Bol. (US$208) and the president himself earns Bol. 19.800 (US$2,865) — thus likely encouraging corruption and mismanagement instead of efficient stewardship of Bolivians’ collective retirement fund.
Opening the door for investment in state companies will turn the national government into its own simultaneous lender and borrower.
Opening the door for investment in state companies will turn the national government into its own simultaneous lender and borrower, its right hand giving consequence-free credit to its left. Funds will most likely be loaned to failing state enterprises with no hope of repaying them.
The Bolivian Central Bank‘s last report on transfers to state companies show a glimpse of what’s to come. Over the last two years alone, the government diverted US$2.2 billion towards them, a figure equivalent to over 20 percent of pension funds at December’s levels.
We can safely predict the ministry will be a resounding failure, just like everything else the state touches. Thankfully, I’m too young to have begun saving money for retirement.
In the long term, however, this socialized system will force old people to continue working long beyond retirement age to secure a decent standard of living amid a deteriorating economy. In Bolivia, maybe the mattress under the bed isn’t such a bad place to stash one’s savings after all.
Translated by Daniel Duarte. Edited by Laurie Blair.