Political Risk Latin America Blog @PolRiskLatam

Bolivians will be retiring earlier, thanks to a recent pension reform

Posted in News and Articles, Political Risk by politicalrisklatam on December 17, 2010

by Tara Brian for Center for Strategic and International Studies, December 17th, 2010.

As countries around the world undergo cost-cutting public pension reforms – lowering benefits for new hires, extending retirement ages, and demanding larger contributions from workers – Bolivia, one of Latin America’s poorest nations, has made a bold step in the opposite direction. Already the only Latin American country to feature a universal old-age pension scheme, a new law, passed earlier this month by President Evo Morales and backed by the country’s principal trade union federation (the COB), intends to extend pension coverage even farther. Most notably, the reform lowers the retirement age from 65 to 58, and allows miners and mothers of three or more children to receive pensions even earlier – at 56 and 55, respectively. Furthermore, coverage will be extended to those in the informal sector – roughly 60 percent of the workforce – provided workers make modest monthly contributions for a total of 10 years. The reform will also nationalize the pension system, which has been managed by two private funds for more than a decade. While supporters of the reform applaud the President for his efforts to extend coverage to the poor, critics worry that the new law is too ambitious and fiscally unsustainable.

This is not the first time Bolivia has made bold changes to its pension system.  In 1997, the country established two private pension funds to manage state-owned shares of newly capitalized companies. The dividends generated by these shares were used to finance BONOSOL , a universal social pension fund which government officials declared, would “ensure that Bolivians benefit from their assets.” Scholars, however, note that the driving force behind the creation of the fund was not to extend coverage to a greater share of the population, but rather to obtain political support for Bolivia’s privatization program, part of a set of neoliberal reforms launched during the 1990s. While the move was supported by the business community and the financial sector, pensioners’ associations and the COB remained staunchly opposed to neoliberal economic policy, including pension privatization. In October 2007, President Morales announced that BONOSOL would be replaced with a new system called Renta Dignidad. Far from abolishing the universal pension fund, Renta Dignidad allowed Morales to put pension reform in his name and made strides to extend coverage. (continue reading… )

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