Patching Up the Pension Fund Folly
The privatization of retirement funds in Latin America has come up short. Except for in Chile, the pioneer of privately managed pension funds, governments are still grappling with huge fund deficits and unfunded liabilities.
Privatizing state pension systems is a remarkable Latin
American innovation. The idea of turning over billions of
dollars in retirement savings to professional managers has
profoundly affected the debate on pension reform, a critical
policy issue in every major economy around the world.
Privatization was meant to achieve several objectives at a
single stroke: a fully-funded pension system would no longer be
a burden on the public finances, it would reduce dependence on
imported capital by increasing domestic savings and it would
revitalize the capital markets by channeling resources to the
private sector. Although the concept of pension reform remains
sound, execution leaves a great deal to be desired. Pension
funds suffer from excessive reliance on government securities,
over-regulation and unfulfilled promises. Pension fund reform
is a complex, politically thankless task. Pension fund assets
are accumulating at a furious pace, but reform has not solved
some of the...
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