Thursday, February 18, 2016

Can the International Reserves help the pension problem in El Salvador?

As we know the international reserves basically is used to direct funding imbalances in the balance of payments. In El Salvador since 1998 the internal debt has growing until to reach the 68% of the GDP in 2015, but it was in 2006 when the Salvadorean ex-president Elias Antonio Saca has the idea to use the private pension funds money to finance the national debt, so in this sense it was created the "Fideicomiso de Obligaciones Previsionales" or Trust Pension Obligations. 
The objetive of this trust is to get money from the private pension funds companies and forcing them to buy securities issued by the Trust and recognizing only the 1.80% of interest. Of course this is a disadvantage for the pension contributors because they don´t see to grow his saves in the funds. 
Now, the private pension funds money will not be forever and the contributors of today will become the pensioners of tomorrow, so this is a problem.

By law, the Salvadorean state have the obligation to provide a pension for every worker, but how to do it if there´s no money? Why not to use the international reserves if the pension obligations are national debt of the salvadorean state?, is this a imbalance in the balance of payments?.
Sure it is, but for that the international reserves must to be investment in a continue way and profitable in the financial markets. Can the Salvadorean Central Bank do that?. Again yes. 

The pension obligations are part of the state´s debt and this obligation is more specific when we are talking about hundreds and hundreds Salvadorean pensioners (more than 6,000 millions), his payment is responsibility of the state, not from the private pension funds companies as the government it led to believe.
That´s why today the pensions theme has appeared in every national media and nobody wants to be a victim of a state pension system.

So, what should be done?.  First, to create a "National Sovereign Wealth Fund" or SWF, and second, to create a strategy about how to the SWF will trade in the international markets profitably to leverage the pensions in charge of the Salvadorean state.

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