By the middle of next year, Bolivia's congress should have approved legislation to create a private pension system.
Following a number of other South American countries, Bolivia plans to adopt a defined contribution scheme. As in Chile, Bolivian's system would rely on accounts handled by private firms, but there is a twist.
Bolivia's plan is to privatize six state-owned industries, selling a 50% stake and management control to an outside investor and using the other half to fund the new retirement system. Each Bolivian adult would receive an allocation of shares that would go into his or her pension account and could not be redeemed until retirement.
By this means, money management firms - which still need to be set up - would immediately have assets to handle. Over time, contributions from workers, and possibly employers, would go into the new system.
At least in the near term, the planned scheme won't fully replace Bolivia's current pay-as-you-go pension program.
According to Carlos Guevara, a consultant working with the pensions secretariat in Bolivia's Ministry of Capitalization in La Paz. Bolivia probably will retain both its existing and new pension schemes. Workers will choose which system they prefer.
"Originally, the idea was to replace the pay-as-you-go system with a fully funded plan," said Mr. Guevara. "But right now, because of political reasons, it's contemplated that both systems might run in parallel for some time to come - although that hasn't been absolutely decided yet."
The proposed pension scheme is part of Bolivia's overall move toward more of a market economy. Bolivian officials have been discussing the pensions aspect for the past several years, but implementation has been delayed. Among the reasons have been squabbles over such things as the design of the new funds, benefits that may or may not have to be adjusted, and, broadly, how existing plans would coordinate with the new arrangements.
Bolivia now has 26 industry pension plans representing such groups as teachers, miners and others. Although all of these plans use a pay-as-you-go funding arrangement, they differ in benefits offered and retirement ages. It might prove impossible to make the new private scheme look more attractive to some groups than the benefits of their existing plans.
"There is a great deal of ignorance, prejudice and narrow interests" of labor groups and political parties that will influence people's decision over which pension system to choose, said Mr. Guevara. On an "unprejudiced basis," workers would "choose the new system because it will be fully funded. But because a number of other elements will come into play.....that aren't rational, (at least some) people may stay in the old system."
But even though disputes over the creation of the funds haven't been resolved, Bolivia is still moving forward with the privatization aspect of the program. So far, it has privatized the state electricity company, the telephone company and, in mid-October, expected to have privatized the state airline. By year's end, Bolivia expects to have privatized its state railroad and tin smelting company, and, in early 1996, its oil company. Shares intended for the new private pension program are being parked with a fiduciary bank until the new scheme is created.
By the middle of next year, Bolivia officials expect to have picked three private firms that will manage assets of the new system. Firms will be selected through an international bidding process. The Bolivian government will hire an investment bank - to be chosen through a bidding process - that will "promote this business opportunity" in Bolivia, said Mr. Guevara.
When the new system starts, each of the three managers should get about $600 million to $700 million from the shares of state companies distributed to the adult public. And those assets should expand through contributions. According to Mr. Guevara, it's projected that each of the managers will have nearly $1 billion under management by 2002.
Mr. Guevara hopes a bill to create the new pension program will pass, if not this year, then sometime in the first half of 1996. In December "there will be municipal elections that may make it impossible for" enabling legislation to pass this year, he said.
Will the eventual system be a great benefit to Bolivia? Timothy Sharples, an actuary with Callund Consulting Ltd., Maidenhead, England, believes it's a good way of privatizing companies, because the money allotted to Bolivians will be saved until retirement and, in the process, will help build the capital markets. But the program would only give people a one-time allocation; it wouldn't force them to set up long-term savings plans. And those too young would be excluded from this disbursement of company shares. Therefore, Mr. Sharples sees Bolivia's plan as "a good way to privatize. But I'm not sure it's a good way to build a universal pension system."