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Institutions in danger: the debate to nationalize the savings should not be a mere legislative procedure
October 22, 2008
Furthermore, on the eve of legislative elections in one year, those affected by the kirchnerist proposal could vote massively for opposition candidates in October 2009 and then the governing party would be lethally hurt if it looses its own majority.
By Gabriel C. Salvia

It attracts attention that it is airy said that "in January" the new Argentinean Integrated Pension System (SIPA) will start to be in force. The previous law that installed the mixed pension system of distribution and individual capitalization which was approved during the first term of Carlos Menem took three months of arduous debate in the national Congress.

In this sense the current initiative of president Cristina Fernández to nationalize the private savings of the "Administradoras de Fondos de Jubilaciones y Pensiones" (AFJP) in order to make the members return to the unique system of state distribution should have at least a similar procedure in the Congress.

This initiative jeopardizes the contributions of 3,6 millions of people, precisely those who not a long time ago ratified their wishes to continue in the subsystem of capitalization when they had the opportunity offered by the government to switch to the public pension system.

If one adds to the violation that this compulsive transfer of money of individuals, the speed and flippancy of the legislative procedure for a project that could be considered confiscatory, there is a double violation of institutions.

As valid precedent it is worth remembering that the semi-privatization of the Argentinean pension system was started with the law project by Carlos Menem sent to the Congress on August 27nd 1992 at the House of Representatives.

There, the Commission of Pension and Social Security just obtained ruling on March 3rd 1993 and afterwards it received the half sanction of the Low Chamber on May 6th the same year. For its part, in the Senate it obtained the definitive sanction on September 23rd 1993. One year and one month later.

Consequently, next to a decline regarding economic liberties it would also imply a heavy institutional deterioration to modify by a fast legislative procedure, a law which sanction was generated after so much discussion and search for consensus.

Now, if one opted for a serious legislative negotiation of this initiative, it could generate a "second rural effect" towards the executive power, as the great number of people affected by the proposal could start to mobilize and put the government in check.

Furthermore, on the eve of legislative elections in one year, those affected by the kirchnerist proposal could vote massively for opposition candidates in October 2009 and then the governing party would be lethally hurt if it looses its own majority.

It is interesting that this initiative of the government offers a new splitting issue in Argentina between those aligned to populism and those defending republican institutions. For example the fact that persons like Hermes Binner, socialist governor of the province of Santa Fe and the vice president Julio Cobos support the government's proposal helps to bring into order the political scene and to unify the opposition.

What is most at stake in this debate about the pension system is the quality of the institutions. The system of individual capitalization is successfully applied in countries like Sweden, symbol for the welfare state where the distribution system collapsed, and closer to Argentina, in Chile.

It is obvious that the pension system by individual capitalization applied in both countries differs a lot from the Argentinean one. But this is not the only difference between those countries and Argentina. Just like menemism, kirchnerism share in the public imaginary the suspicion of corrupt practice and in this context market economy is not feasible.

One only has to observe the positions of Sweden, Chile and Argentina in the ranking of Transparency International. There, the Nordic find themselves in the first place with a score of 9,3 out of 10 which is the maximum. Chile has position number 23 with a score of 6,9 and Argentina appears on the position 109 with a score of 2,9.

This problematic initiative of President Cristina Fernández de Kirchner should serve, furthermore, to generate a fundamental debate in the public opinion about the country's model. Mainly taking into account that regarding political, economic and institutional matters one part of the society clearly prefers Chile and another one Venezuela.

Gabriel C. Salvia is Chairman  of the Center for the Opening and Development of Latin America (CADAL).