MEXICO CITY - Mexico's privatized pension system is expected to face a year of consolidation and fine-tuning before further liberalization toward the end of the year.
But there's no doubt the fledgling system has surpassed all expectations.
Under the system, started July 1, social security contributions are channeled into workers' private, individual accounts managed by pension companies called Afores. The system now has several billion dollars under management. (Exact figures won't be released until February.) Moreover, the Afores have met their greatest initial challenge by signing up 11.2 million workers - 95% of those eligible - and many more than the 5 million to 8 million money managers originally expected.
"We were expecting a much lower number of affiliated workers in the market as a whole," said Jose Pablo Quintana, director general of Afore Garante, which is backed by Citibank, Mexico City-based Grupo Financiero Serfin and Habitat, a Chilean pension management firm based in Santiago. "But the overall effort to raise awareness of the Afores was successful, and people have responded."
The accounts of non-affiliated workers are held in a fund at the central bank.
The Afores' investment regime, which allows only one investment fund per Afore and requires all assets to be invested in instruments that guarantee a return above inflation, will remain restrictive for most of this year, according to managers. By January, 39% of Afores' assets were invested in Mexican treasury certificates, 29% in government bonds denominated in UDIs (an instrument that maintains its value against inflation), and 31% in other government bonds. Only 1% was invested in private debt. (Within those strict limits, Afore Bital and Solida Banorte Afore have led the pack with nominal returns of more than 23% during the second half of 1997.)
But Fernando Solis, the president of the National Retirement Savings Commission, known as Consar, said recently that regulators might allow Afores to offer a second investment fund by June. A second fund could be subject to less restrictive investment rules, and might even be able to invest in certain companies listed on the Mexican Stock Exchange. But until that idea is made law, and with most workers already signed up, most Afores will need to concentrate this year on smoothing their process of collecting workers' contributions.
The system might also begin a process of consolidation this year, with big Afores buying some of the little ones. Other fusions might take place as part of the ongoing consolidation of the overall financial system.
Grupo Financiero Bancomer, the parent of Afore Bancomer, is in the process of acquiring Promex, the parent of Afore Promex. But the restriction on market share by any single Afore might prevent the Afores from merging because Afore Bancomer is already at the 17% cap. Also, the Bital financial group is in talks to acquire GBM-Atlantico; the companies have not announced if their respective Afores would be part of the deal.
"I don't see much possibility of fusions this year," said Ralf Peters, the director general of Afore Bancomer, in an opinion that runs contrary to the general feeling among money managers.
The final major change in the Afores' environment this year also will come in the second half, when workers will be allowed to change Afores. With most workers already affiliated, managers will have to put greater stress on boosting investment returns and designing customer retention programs.
But the danger of a slow start is past, and by virtue of Mexico's large population, the system seems destined to grow into one of the biggest private pension schemes in the world. The system could have $16.7 billion (4.6% of gross domestic product) under management by the end of 1998, almost half the amount managed in Chile's 16-year-old system, according to a recent Salomon Brothers Inc. report.
"Mexico will be the most important market in the world for this kind of pension system within three years; it will be bigger than Chile or Argentina and just as efficient," said Mr. Quintana of Afore Garante. "Besides, there are 1 million new workers entering the labor force each year, and many of them are eligible to join an Afore."
