Social Security privatization in Latin America

The new, partially privatized social security system adopted by Chile in 1981 has attracted attention in many parts of the world. Since then, a number of Latin American countries have implemented the Chilean model, with some variations: either with a single- or multi-tier system, or with a period of transition to take care of those in the labor force at the time of the change. The single-tier version consists of a privatized program with individual accounts in pension fund management companies. Multi-tier systems have a privatized component and retain some form of public program. This article describes each of the new programs in Latin America, their background, and similarities and differences among them. Much more information is available for Chile than for the other countries (in part because Chile has the oldest system), enough to be able to evaluate what, in most cases, is the most accurate information. That is often not the case for the other countries, especially when dealing with subjects such as transition costs and net rates of return (rates of return minus administrative fees). No country has copied the Chilean system exactly. Bolivia, El Salvador, and Mexico have closed their public systems and set up mandatory individual accounts. Argentina has a mixed public/private system with three tiers. In Colombia and Peru, workers have a choice between the public and private programs. Uruguay created a two-tier mixed system. Costa Rica has a voluntary program for individual accounts as a supplement to the pay-as-you-go program and has just passed a law setting up mandatory accounts containing employer contributions for severance pay. All of the countries continue to face unresolved issues, including: High rates of noncompliance--the percentage of enrollees who do not actively and regularly contribute to their accounts--which could lead to low benefits and greater costs to the governments that offer a guaranteed minimum benefit; Proportionately lower benefits for women and lower earners than for men and higher earners; A minimum required rate of return among the pension fund management companies (in most of these countries) that has resulted in similarity among the companies and the consequent lack of meaningful choice; and High administrative fees in most of these countries, which reduce the individual's effective rate of return. To what extent these issues can be mitigated or resolved in the future is not yet clear. In general, a definitive assessment of the Chilean model and its Latin American variations will not be possible until a cohort of retirees has spent most of its career under the new system.     

Next generation of individual account pension reforms in Latin America

Latin America led the world in introducing individual retirement accounts intended to complement or replace defined benefit state-sponsored, pay-as-you-go systems. After Chile implemented the first system in 1981, a number of other Latin American countries incorporated privately managed individual accounts as part of their retirement income systems beginning in the 1990s. This article examines the subsequent "reform of the reform" of these pension systems, with a focus on the recent overhaul of the Chilean system and major reforms in Mexico, Peru, and Colombia. The authors analyze key elements of pension reform in the region relating to individual accounts: system coverage, fees, competition, investment, the impact of gender on benefits, financial education, voluntary savings, and payouts.     

Public pension reform in Japan

The March 2000 pension reform in Japan focused on the long-term financial sustainability of the country's two-tiered public pension system. The government opted for incremental changes in order to maintain pension solvency through 2060. Those changes could reduce future pension funding liability by an estimated one-third. Further, the decision to avoid structural reforms of its pension programs was based on fiscal considerations. Expanding general revenue funding for the first tier from the current share of one-third to cover the entire cost would require increases in the consumption tax that proved to be politically unacceptable. Fully privatizing the second, earnings-related tier would entail transition costs too great to bear at a time of rising budget deficits. In addition, the Japanese public generally supported the sharing of financial burden for public pension programs through a combination of benefit cuts, a raise in the pensionable age, and contribution rate increases. If current cost projections prove to be inaccurate, future pension reviews (scheduled every 5 years) will give the government further opportunity to fine-tune program changes.     

Retirement income security in the United Kingdom.

This article examines the U.K. retirement income security system from the American perspective. It addresses issues that most concern U.S. analysts: how the United Kingdom has kept its future public pension costs at a manageable level, the extent to which privatization of public pensions has contributed to low pension costs, the popular appeal of individual pension accounts, and the impact of privatization on retirement income. These issues are best understood in the context of the U.K. pension program's particular institutional structure and policies, two of which--"contracting out" of public pensions, and strong reliance on means-tested benefits--have been largely rejected in the evolution of U.S. policy to date. Particular use is made of recently available data on coverage rates for public and private pension programs over the total working population and administrative records on inactive personal pension accounts.     

Design and implementation issues in Swedish individual pension accounts

Sweden's new multipillar pension system includes a system of mandatory fully funded individual accounts. The Swedish system offers contributors more than 600 fund options from a variety of private-sector fund managers. However, in the most recent rounds of fund choice, more than 90 percent of new labor market entrants have not made an active choice of funds and thus have ended up in a government-sponsored default fund. The Swedish system offers a number of lessons about implementing a mandatory individual account tier. Centralized administration keeps administrative costs down but requires considerable lead time. A very large number of fund options are likely to be offered unless strong entry barriers are in place. Engaging new labor market entrants in fund choice is likely to be difficult. A significant percentage of those making an active fund choice may choose funds that are very specialized and risky. Finally, special care must be devoted to designing a default fund and continual consumer communication.     

What's past is prologue,or is it? Generational effects on voter turnout in post-communist countries, 1990–2013

A common theme in studies of voter turnout in Central and Eastern Europe (CEE) is that the legacy of communism attenuates electoral participation. It is argued that socialization and the political habits that emerged under communism impeded democratic development by not motivating citizen activism. This paper examines this claim for voter turnout in the Czech Republic, Slovakia, Hungary, and Poland for all general elections since 1990 using cohort analysis on pooled crosssectional post-election surveys from given countries. This paper shows that socialization and political habit formation under communism have had no discernible effect on voter turnout in the Czech Republic, Slovakia and Hungary between 1990 and 2013. Generational effects are evident in Poland suggesting that this country's political history is qualitatively different from that of its neighbours. This research is important in highlighting that citizens' political development within non-liberal democratic regimes does not always lead to lower levels of voter turnout. Consequently, the decline in turnout in CEE is likely to have attitudinal rather than generational origins where contemporary rather than historical political developments are most important.     

Pension Privatization: Evolution of a Paradigm

From 1981 to 2004, a paradigm shift occurred in pension systems worldwide as more than 30 countries fully or partially replaced their state‐administered pay‐as‐you‐go pension systems with ones based on individual, private savings accounts. Yet in 2005, pension privatization abruptly stopped. After the 2008 crisis, several countries that had privatized their pension systems scaled back or even canceled individual accounts. Is the new pension paradigm dead? And if so, why? This article shows that fiscal and ideational factors caused a temporary halt to pension privatization worldwide and induced transnational pension policy networks to find new ways to respond to perceived failures. Adjustments to the new pension paradigm such as emphasizing minimum pensions and recommending that governments “nudge” rather than mandate pension savings will enable pension privatization to continue in years ahead, albeit in a revised form.     

From Chicago to Santiago: Neoliberalism and Social Security Privatization in Chile

This article examines the ideology and principles that inspired the privatization of social security in Chile during the Pinochet regime. The article highlights the role of the state in the establishment of a fully funded, defined contribution system, as well as the importance of the transmission of ideas from the halls of the University of Chicago to Chile's centers of power. In the case of Chile, the ideas of freedom espoused by Milton Friedman and Frederick von Hayek were applied by a repressive authoritarian regime that violated human and political rights. Furthermore, these ideas served to legitimize a political and economic system based on the deprivation of freedom. Although social security reform was a critical component of a revolution going on in Chile in the 1970s, the ultimate purpose of this article is to show that the effects of this reform are by no means limited to Chile. The Chilean reform has been adopted by countries in Latin America and other parts of the world, and it has critically affected those societies as well. The article shows that the establishment of the fully funded, defined contribution system has been very costly, both for the state and the insured, while coverage has dramatically declined. The article concludes that the market economic reforms have enhanced only the freedom of those who could take advantage of the new economy, and that few of the promises made during the Pinochet regime by the neoliberal economists came true.     

The Welfare State in Transition Economies and Accession to the EU

Welfare state reform in East-Central Europe can be divided into two phases: in the first phase, when liberalisation, stabilisation and privatisation were of primary importance, only minor or absolutely necessary reform steps were taken. This soon led many countries into fiscal problems that triggered the second phase of substantial pension and health system reforms. Having been already part of the European welfare state tradition in the pre-communist period, the countries of East-Central Europe were not prepared to take over the essentially private three pillar model of the World Bank. Instead the forerunners of reform, such as Hungary, Poland and Latvia, are developing, together with some incumbent EU members, a new European four pillar model with a specific public-private mix. Even if the social acquis communautaire is not very restrictive for the candidate states, they seem keen to join the European welfare state culture.     

Between EU Requirements, Competitive Politics, and National Traditions: Re–creating Regions in the Accession Countries of Central and Eastern Europe

The article studies the impact of the European Union (EU) on the reforms of regional administration in Central and East European (CEE) accession countries. It analyzes the motives, process and outcomes of regional– or mesolevel administrative reforms in five countries—Bulgaria, the Czech Republic, Hungary, Poland, and Slovakia—considering whether the EU has shaped these reforms to a higher degree than in relation to its incumbent member states. The article finds that the EU Commission's interest in regional self–governments with a substantial fiscal and legal autonomy has provided an additional rationale and an incentive to re–create regional self–governments. Advocates of regional self–government and an institutionalization of regions in the accession countries have referred to European trends and (perceived) EU expectations of regionalization. Thus, the Commission and the preaccession framework have become catalysts for a process in which most CEE regions have already enhanced and will further increase their political salience. However, the trajectories and outcomes of regional–level reforms can be better explained by a combination of domestic institutional legacies, policy approaches of reformers and their adversaries, and the influence of ethnic/historical regionalism.     

The Financial Crisis and Varieties of Pension Privatization Reversals in Eastern Europe

Since the global financial crisis, those East European countries that had partly privatized their pension systems in the 1990s or early 2000s increasingly scaled back their mandatory private retirement accounts and restored the role of public provision. What explains this wave of reversals in pension privatization and variation in its outcomes? Proponents of pension privatization had argued that it would boost domestic capital markets and economic growth. By revealing how pension privatization helped increase sovereign debt and how large a part of pension funds' assets was invested in government bonds, the crisis strengthened the position of domestic opponents of mandatory private accounts. But these actors' capacity and determination to reverse pension privatization depended on the level of their country's public debt and on pension funds' portfolio structure. Empirically, the argument is supported with case studies of Hungarian, Polish, and Slovak pension reform.     

The interest cost savings from municipal bond insurance: The implications for privatization

Previous studies of privatization have considered the cost-effectiveness of privatizing more labor-intensive services. This study examines the effectiveness of public and private delivery of a more capital-intensive service: insuring municipal bonds against default. Credit enhancement for local government bonds is available from private insurance companies and from some state governments. Because of their reduced default risk, bonds backed by a third party should incur lower interest rates. This research considers two questions. Does a third party guarantee lower interest rates? Is private bond insurance more cost-effective than the credit enhancement programs of state governments in lowering interest rates?     

Latin–American public financial reporting: recent and future development

In recent years, numerous Latin–American countries have carried out reforms in their public accounting systems, with technical cooperation provided by the U.S. Agency for International Development (USAID). Taking into account the lack of international accounting standards for the public sector, USAID has designed a model termed Integrated Financial Management System for Latin America and the Caribbean (IFMS or SIMAFAL). This model is intended to provide better financial information for governmental decision‐taking as regards the allocation of resources; a further goal is to achieve greater transparency and for a higher degree of responsibility to be accepted for the commitments made and the results of activities undertaken. Important changes are currently taking place on the international public accounting scene and the International Federation of Accountants (IFAC) is pressing for the adoption of a set of international public accounting standards by Latin–American countries. In this article, we compare the level of information included in the year‐end governmental public report in Latin–American countries which have carried out their reforms outside SIMAFAL with that of others which have followed this model. Second, we examine the extent to which the public financial reporting practices recommended by IFAC coincide with those adopted by the above countries. Copyright © 2007 John Wiley & Sons, Ltd.     

Neo-liberalism,big business and the evolution of interest group activity in Latin America

In the 1980s and 1990s, the confluence of the third wave of democracy, neo-liberal economic reforms and economic crises in Latin America, produced several significant consequences for the region's underdeveloped interest group systems. By using an international political economy approach, this article examines these developments and particularly how neo-liberal policies affected the political fortunes of big business plus the broader political fall-out from neo-liberal policies. In essence, we make the argument that, for three reasons, the consequences of the confluence of these three developments for Latin America's emerging interest group system are mixed in terms of a more pluralist, open-access system. First, the influence of big business persists and in many ways has been enhanced as the economically and politically privileged position of large private companies since the 1980s has given way to economic concentration, transnationalization and the rise of multilatinas (Latin American multinational companies, which primarily operate across the region). Second, political opportunities have been opened for a range of interests, many from the left, that likely would not otherwise have emerged so early in the region. Third, the election of leaders opposed to neo-liberal policies may transform Latin America's political economy and aid in the democratization of its interest group system. Copyright © 2012 John Wiley & Sons, Ltd.     

The Bush Administration Record in Latin America: Sins of Omission and Commission

The conventional wisdom among analysts and scholars is that at least since September 11, 2001, the United States has tended to neglect its relations with Latin America. As a result of that inattention, other countries from outside the region have been able to make inroads, and there has generally been a regional drift in the direction of election and policy outcomes that do not favor US interests. While this article assumes that conventional understanding of the outcomes in the region, the central argument here is that it is not neglect (or “sins of omission”) that best explains those developments. Rather, it is the actual US policies that have been pursued (“sins of commission”), as well as the effective strategies pursued by Latin American leaders and organizations, which are largely responsible for the situation that confronts President Obama in Latin America. The article focuses on Venezuela, Cuba, and Bolivia, the three countries that have sometimes been described as the Latin American “axis of evil.”     

Public Financial Management Reforms: The Role of Ipsas in Latin‐America

During the last 30 years, many public administration reforms promoted by New Public Management have been undertaken. These reforms have spread to Latin‐American countries and include changes in governmental accounting systems, where the implementation of International Public Sector Accounting Standards (IPSASs) has been a stimulus for modernization. This article aims to clarify the situation of IPSASs implementation in the Latin‐American context as well as the stimuli for and effects of their implementation. The analysis shows that there is an emerging international trend to adopt IPSASs in Latin‐American countries although at the same time, there are evident obstacles to achieving reform goals. In Colombia, reforms are still underway, and the usefulness of IPSASs to improve decision‐making at an organisational level cannot be evaluated. Meanwhile, in Peru, the modernization is more rhetorical than real, and many efforts remain to be made for the effective implementation. Copyright © 2016 John Wiley & Sons, Ltd.     

Tutors and Pupils: International Organizations, Central European Elites, and Western Models

In the past decade, political elites in Central and Eastern Europe have often sought to imitate Western organizational and institutional models, while organizations like the EU and NATO have often acted as “institutional tutors” in the region. Using evidence from Hungary and the Czech Republic, this paper demonstrates why imitating Western structures has been both administratively expedient and useful in building political coalitions. It also stresses that the short‐term benefits of doing so are followed by longer‐term costs. The paper answers four questions: How have certain models been held up to CEE elites? Why might some such models be targets for elites to imitate? How does such imitation occur? And what results from imitation? Contrary to expectations that institutional modeling would be merely technocratic and used only yearly in the transformation, the paper's threefold heuristic of templates, thresholds, and adjustments shows that the process is both politically contentious and sustained.     

The demographic consequences of austerity in Latin America: methodological aspects

This work reviews evidence in the literature of possible demographic effects of the austerity programs imposed on Latin American countries in the 1980s. The work focuses on methodological problems involved in assessing demographic changes and ascertaining that they were indeed attributable to the economic crisis. An introductory section describes the recession of the 1980s in Latin America, the declines in employment and living standards, and the health and social consequences of the deepening poverty. But the author argues that evaluation of health conditions, levels of nutrition, and especially factors such as infant mortality, fertility, marriage patterns, and migration as indicators of the impact of the economic depression is full of pitfalls that are not always obvious. Few Latin American countries have civil registration systems capable of providing accurate and up-to-date mortality and fertility data. Indirect methods currently in use were intended to analyze longterm levels and trends and are of little use for short-term fluctuations. Data on internal migration are scarce even in developed countries. Even when recent data are available it is often difficult or impossible to obtain data for comparison. Infant mortality and malnutrition levels, for example, are serious problems in many parts of Latin America, but series of data capable of demonstrating that they are truly consequences of the economic crisis are lacking. Another challenge is to separate the demographic effects of the debt crisis from longterm structural processes. The possibility of time lags and of different time frames may increase confusion. Almost a year must pass before effects on birth rates can be expected, for example. Neutralizing mechanisms may obscure the effects sought. Thus, the most impoverished urban sectors may return to the countryside to seek refuge in subsistence agriculture; their departure would in some measure diminish the consequences of recession in the urban economy. The type of cross-sectional analysis of differential fertility and mortality that is currently stressed in demographic studies is of limited utility for understanding the demographic impact of economic oscillations, for which a longitudinal approach is required. The next section of the article compares evidence of the effects of the recession of the 1980s with the Great Depression of the 1930s and with historical crises, suggesting that contemporary economic recessions have little in common in terms of causes or demographic consequences with historic crises. Specific studies and available data are then examined in the areas of fertility and mortality, longterm consequences of the economic recession, and migration.     

District magnitude and voter turnout a multi-level analysis of self-reported voting in the 32 Dominican Republic districts

Although studies of electoral participation in established democracies are abundant, little attention has been devoted to Latin American democracies and few studies combine individual-level and contextual-level variables. We focus on electoral participation in 32 districts of a Latin American democracy, the Dominican Republic. Our research question is: how to explain the different impact of district magnitude in Latin America? Most importantly, we find that it has a negative effect on electoral participation whereas theories based on established democracies would predict the opposite. We argue that the negative effect is caused by the stronger influence of clientelism in smaller districts, which surfaces at less salient elections. This argument accounts for previously unexplained findings in studies of Latin America.     

Forgetting to make votes count: The role of previous democratic experience

This paper argues that wasted votes in founding elections decrease when countries have a previous democratic experience before the current democratic period. This historical-institutionalist argument is tested with national election results in 22 founding elections in third-wave European, Asian, Latin American and African democracies. The results demonstrate that having a democratic past clearly increases coordination and then reduces the percentage of wasted votes in the founding election, controlling for the electoral system.