Author Topic: Mexico  (Read 413424 times)


Crafty_Dog

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Stratfor: AMLO's pension reform
« Reply #655 on: July 29, 2020, 06:28:37 AM »
Lopez Obrador Unexpectedly Moves to Safeguard Mexico’s Pension System
3 MINS READ
Jul 28, 2020 | 19:10 GMT

Mexican President Andres Manuel Lopez Obrador’s proposed overhaul to Mexico’s pension system will preserve investor confidence by maintaining the country’s current individual account system, while still addressing pressing concerns about the system’s long-term sustainability. On July 22, Lopez Obrador announced his proposed pension reforms, which the Mexican Congress will vote on when it reconvenes in September. The proposed changes to Mexico’s current pension system include doubling employer contributions over an eight-year period; increasing total contributions from 6.5 to 15 percent; limiting the commissions charged by Retirement Funds Administrators (AFOREs); and decreasing the number of years a worker needs to contribute to access a minimum guaranteed pension from 25 to 15 years, while increasing the number of such pensions by about 40 percent.

The overhaul will quell fears about Mexico reverting back to a defined benefits system. Lopez Obrador was a long-standing critic of Mexico’s pension system, which has been based on individual retirement accounts since the signing of landmark reforms in 1997. Over the years, the system had become a symbol of Mexico’s economic liberalization. But given Lopez Obrador’s previous criticisms and the need for funds to finance his government’s infrastructure projects, private sector leaders had feared he would seek to nationalize the pension system as Argentina did in 2008.

Latin American Pension Reforms

Across Latin America, politicians have been moving toward altering the defined contributions systems prevalent in the region. Chile recently voted to allow emergency withdrawals that will harm its individual accounts-based pension system. Peru and Brazil are also exploring changes to allow withdrawals that would hurt the long-term sustainability of their systems or create hybrid systems.

The timing of the announcement allows the Lopez Obrador administration to preempt more radical proposals that would have further hurt investor confidence in Mexico. Lopez Obrador’s hard-line supporters had floated several, more radical pension reform proposals, including the creation of a mixed system where low-income workers would be part of a separate “defined benefits” system. Some supporters had also pushed to nationalize current individual pension accounts.

The proposal could help repair Lopez Obrador’s relationship with the private sector, which has been steadily deteriorating since his more statist administration took office in December 2018. The pension reforms were designed with the input and approval of Mexico’s main business sector organization, the Consejo Coordinador Empresarial (CCE). The support by the business sector, unions and the leadership of Lopez Obrador’s party will also make it difficult for his hard-line supporters to oppose his reform proposal.

The proposal, however, is not problem-free as there are still legitimate concerns over the long-term impact of the increase in employer contributions on both formal employment and small businesses. The pension reforms also do not mitigate the risk of AFOREs being forced through legislation to invest in Lopez Obrador’s pet infrastructure projects.

Crafty_Dog

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