MEXICO CITY - Mexico's privatized pension system will take effect July 1, in a bold shift from a public pay-as-you-go system to the system based on individual retirement accounts.
While the pension law was passed in late 1995, the companies that will manage workers' retirement funds, known as Afores, were not authorized until February. Since then, the Afores have initiated feverish advertising campaigns and a fierce competition.
"Considering that there was no large publicity campaign before February, we've seen a good result in the registration of workers," said Roberto Isaac, the director general of Afore Inbursa. "The tendency is very positive."
During the last five months, the Afores have signed up nearly 4 million of the 10 million eligible workers, although Afore directors say the true figure is higher because hundreds of thousands of workers' registrations have been signed but not processed. The Afores belonging to Grupo Financiero Bancomer and GF Banamex-Accival, Mexico's two largest financial groups, lead the pack with 880,044 and 677,954 workers signed as of June 6, respectively. Both are based in Mexico City.
The Afores are expected to handle about $5 billion by the end of the year, and up to 20% of Mexico's gross domestic product in 15 years. Assets of workers who do not choose an Afore will go to a special account in the Bank of Mexico, the central bank; after a limit of four years, they will be distributed among the Afores. No Afore may control more than 17% of the total market of eligible workers.
Afores face a dual challenge in registering workers because they must differentiate themselves from the competition as well as explain the basic outline of the system to customers who in many cases have no banking or investment experience.
"We're making a very big cultural change," said Humberto Allendes, the director general of Afore Santander Mexicano. "Afores and investments are not questions you can explain in 30 seconds."
Several important questions remained before the new system's launch. The Consar, the pension regulatory body, has not said when and how about $4 billion in Mexico's private but small-scale Retirement Savings System will be transferred to the Afores. Afores managers expect the payment to be made in September, along with the first contributions from workers and employers, and they said the payment will not be made in cash, but possibly in Mexican treasury certificates or another government bond. Afores executives said their main concern is that the instrument pay a competitive interest rate.
More importantly for the Afores' long-term future, the Consar has yet to announce which investments will be allowed during the new system's first year of operation. The only known requirement - that investments produce a return above inflation - points toward bonds denominated in UDIs, a special inflation-indexed instrument created in 1995, and perhaps certain other government bonds.
Corporate bonds from Mexican companies with top ratings also might be allowed. Equity investments will not be permitted, although the investment regime is likely to be liberalized beginning in mid-1998.
The Afores also have drawn some political fire during the run-up to Mexico's congressional and gubernatorial elections July 6. Several left-of-center politicians including Cuauhtemoc Cardenas, who is likely to become Mexico City's first elected mayor, recently directed their followers not to join an Afore as a protest to privatization.
But most Afore managers said they believed political opposition would fizzle.
"There's always going to be some inertia when a system like this begins," said Mr. Allendes, a Chilean who worked in Santander's Chilean and Argentinian fund managers. "But the danger of taking a step backwards is greatest before the system begins, and we're beyond that. Once things gain legitimacy in people's eyes, it's very hard to take them away."