Peru follows Chilean Model of Looting Through Pension Privatization
by Valerie Rush and Manuel Hidalgo
Dec. 21 (EIRNS)In obedience to the international financial circles that run the International Monetary Fund and creditor banks which hold Peru's purse strings, the Peruvian Congress last month approved a Chilean-style "reform" of the country's semi-privatized pension system, whereby all retirees from now on will have no choice but to place their social security payments into private pension funds known as AFPs. The already-gutted state-run pension system has now been left to die a quick death.
The AFPs make broad promises of higher returns, based on investing workers' contributions in get-rick-quick schemes, but every Peruvian worker knows that their nest eggs could just as easily crack, as they did in 1992, when the infamous pyramid financial scheme known as CLAE went belly up, wiping out the savings of tens of thousands of Peruvian depositors. Investment in CLAE was voluntary, however, unlike the AFPs. When the privatized pension funds fail, Peru's retirees will have no government safety-net to fall back on.
Law 2053, passed last Nov. 11, is designed to give a shot in the arm to the AFPsand to the handful of largely foreign-owned banks which manage themby providing an urgently needed source of new cash-plunder to prop up the bankrupt financial system. One of the leaders of Peru's national association of retirees pointed to the foreign financiers behind the AFPs as the actual authors of the legislation. There are only four surviving AFPs in PeruHorizonte, Integra, Profuturo, and Union Vidaand all of them are managed by Peruvian banks that are majority-owned by Spanish, Dutch, U.S., Italian, and other foreign banks. In combination, these AFPs administer a fund of nearly $7 billion, most of which are placed in risky investments, especially in the stocks and bonds of the very banks that are behind the AFPs!
Despite the fact that Peru's AFPs scoop off the top 28.7% of workers' contributions in commissions (as compared to 15% as the regional average), it is widely known inside Peru that the private pension funds are in serious financial trouble. Before Law 2053 was passed, making affiliation to the AFPs mandatory, the rate of new memberships in these private funds was falling, the combined effect of the crushing recession and the growing instability of the job market. When discussions were held in Congress in October 2003 regarding legislation permitting workers to freely disaffiliate from the AFPs, media linked to the financial groups behind the AFPs began to scream that this would put the the entire pension system at risk.
Law 2053 is thus a thinly veiled government bailout of these shaky funds, since the AFP system is in fact based on nothing more than workers' savings captured through government enforcement. The reality is that the AFPs now have all the advantages of the banks, but none of the obligations to their depositors.
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