Thursday, July 24, 1997

Pension funds - not yet!

For over ten years I have been enthusiastic about the implementation of pension funds such as those developed in Chile. I have assisted numerous related seminars, both in Chile as well as in Venezuela. We have finally come to the point where there is general acceptance in the country of the basic concepts involved and legal and political blessing seems just around the corner. Why, then, do I not feel satisfied? 

We have often seen the elderly treated in a very humane and civilized manner in poor and underdeveloped societies. We have also seen horrifying situations in countries with immense wealth and development. There seems to be, then, no real direct link between the wealth of a country and the quality of care it supplies for its elders. Obviously, the existence of economic resources facilitates care while the absence of the same can render even the best of intentions totally useless. 

In Chile, Peru and other countries in which pension funds have been established, these are only part of a series of measures and instruments aimed at returning economic rationality to their respective economies. In each of them, the fact that they have achieved strong and healthy growth, thereby allowing pension funds to obtain excellent returns, has undoubtedly contributed to the latter’s popularity. I doubt that any pension fund, no matter how well regulated, managed with utmost responsibility and subjected to the most efficient supervision, would have had the slightest chance of surviving and becoming an example for other countries should they have been developed in an economy managed by Salvador Allende or Alan Garcia. 

In order to guarantee the future of young, adults and elders alike in Venezuela, it is more important to achieve the reforms that insure that oil income such as that we have garnered in the last twenty years does not continue to go down the drain, than it is to simply introduce pension fund schemes. On the contrary, the development of pension funds in actual circumstances before the country has had the chance to find its way forward, could simply result in the disparaging of an excellent idea. 

This must necessarily be taken into account by all those that, in their search for business opportunities, are falling all over each other to assert their rights to administer the funds. The day a new generation of elderly accuses a fund administrator of bad management, it will be useless for the latter to argue that the State (synonym for politicians thirsty for fiscal resources required to complement reduced oil income) obliged them to invest in public securities. It will also be useless to look for absolution using the argument that they are not at fault that new devaluations have severely eroded the value of their patrimony. 

To assume responsibility of a pension fund is serious business. Even though I am certain that the private sector would be more efficient than the public sector, I believe that under present circumstances results would not be sufficiently satisfactory. If the country’s thinking population is satisfied with the mere introduction of pension funds, they are simply supplying politicians with the next generation of scapegoats. 

I would be ready to sacrifice for all time to come, the existence of pension funds managed by the private sector and even to accept the creation of a new Seguro Social in the hands of CorpoMercadeo professionals in exchange for fundamental reforms. I would even be ready to do so against a simple constitutional reform that would prohibit future contracting of external and internal debt by the public sector. I’m certain this trade off would be of great value to our future population of retirees. 

Finally, let us not forget that living in a society implies the continuous allocation and reallocation of resources. Should all our elders (myself included) become millionaires (in real terms) as a result of their investments in pension funds while the rest of the country lags behind and is not able to participate in this well being, let me assure you that future generations, in all their right, will certainly not allow us to peacefully enjoy our old age. 

For God’s sake, until when will we have to listen to siren songs about possible real returns in an unreal country.

Published in The Daily Journal of Caracas

Thursday, July 03, 1997

A child's question about the economy

During the last few years economic policy in Venezuela has given rise to some basic questions and issues that often go unnoticed or unanswered since many of them are so simple that they border on the infantile. When addressed, the answers frequently offered to these questions are similar to those we often give in desperation to our children when they overdo the question bit, that is, “because that’s the way it is” or “because I say so”!

I honestly believe that the future of our country depends to a high degree on the answers to some of these basic questions. Although I have studied in various countries, hold a post-graduate degree, and am a professional with lengthy experience in many areas related to the national economic scene, I will let my inner child roam and assume the role of that questioning boy for a brief moment.

There is firm consensus, both inside Venezuela as well as internationally, that our public administration has been basically inept, or more precisely, has been incredibly incapable of managing our resources. How can it be possible, then, that the Agenda Venezuela includes, as a fundamental element, a considerable increase in the income generated for the public sector, and more so, how can it be possible that the International Monetary Fund has recommended such increases?

Why, if the country had a positive trade balance which should have resulted in a stable currency, did we have to suffer through a mega-devaluation (which impoverishes the private sector and enriches the public sector) and how can it occur to anyone to call this “orthodox”?

In general terms, the last thing the economists would have recommended for a country submerged in a deep recession would be an increase in taxation. Why, then, have fiscal charges been increased in Venezuela, resulting in an even deeper recession and how can it occur to anyone to call this “orthodox”?

If there is a firm consensus, both inside Venezuela as well as internationally, that the future of the country is based fundamentally on a drastic reduction in the size of the public sector and that such policies have been applied by our self-proclaimed neoliberal planning ministers to whom they have become almost a religion, then why has the public sector grown in relation to the private sector, year after year after year?

Oil is, as is a Picasso painting, an easily liquidated asset. Why should we be so enchanted with the income created by the oil aperture if we have not yet been told what will be done with it and where it will be spent. A bit like selling your home without knowing beforehand where you will move to or what the cost of a new house will be.

For years we have accused the international banking community of deceiving us and having smothered us in devilish foreign debt. Why, then, are we now supposed to be pleased as punch that the foreign banks are again showing confidence in Venezuela and are going to increase lending in the country?

If after a few months of Agenda Venezuela, during which recession has deepened, the public sector has grown and no major inroads have been made on reforms corresponding to vital sectors such as the judiciary, health and education, then who does the International Monetary Fund work for when they congratulate the authorities on their performance and, in the same breath, insist on increasing gasoline prices?

We have always known that we are a society of rentiers based on our oil income, that while petroleum reserves last we will basically always be a society of rentiers and that most of our problems stem from the fact that we are simply inefficient rentiers. Why, then, do we insist on the search for an economic model based on the elimination of this society of rentiers instead of finding one that will insure that we become competent rentiers?

We know that the oil industry is not by itself a great employment generator. We also know that due to the overvalued exchange parity caused by this oil income it will always be difficult for labor intensive economic activities to remain competitive. Why do we insist on being so purist in the application of neoliberal policies, for example, in the establishment of toll charges for access to public parks, while we come close to fainting at the thought of offering a bit of support and protection to the greatest of our national parks called “agriculture”?

It would be easy for Dad to answer his children’s queries with a simple “go ask the economists” but then, what else can I, as an economist Dad, do?