Pension Reform in Latin America and Its Lessons for International Policymakers

Abstract

Pension Reform in Latin America and Its Lessons for International Policymakers, by Tapen Sinha, 2000, Norwell, Mass.: Kluwer Academic Publishers Reviewer: Ian Webb, International Insurance Foundation, Washington, DC. Tapen Sinha, professor in the Department of Actuarial, Statistical, and Mathematical Studies at the Instituto Tecnologico Autonomo de Mexico (ITAM), has put together an informative and probing reference book on pension reform in Latin America. The book is divided into six chapters, which offer in turn a historical view of Latin America, a review of existing alternative models of social security around the world, a comparison of recent pension reforms in Latin America, an in-depth look at theoretical arguments used to support the privatization of a pension system, a review of pension terminology with cross-reference to country examples, and concluding observations on the privatization experiment and debate. The first chapter's overview of the economic, social, and demographic histories of Latin American countries includes an interesting account of the development of social security provisions in these countries and a modest statistical appendix. The second chapter begins to address the central issues of the book-evaluating the Latin American experiment, a pension reform that emphazises second and third pillars in a world dominated by first pillar pay-as-you-go systems. In this chapter Sinha scrutinizes claims that privatization can lead to reduced labor market distortions, improved compliance, the development of financial markets, higher aggregate savings, a replacement of nearly bankrupt pay-as-you-go social security systems, and the engendering of parallel reforms in broader economic areas. The chapter ends with an introduction to some mathematical models that allow partial and general equilibrium analyses of pay-as-you-go and fully funded pension systems. The third chapter gives a country by country description of Latin America's reformed pension systems. While there is an unmistakable general model which all countries follow, the differences between them are substantial enough to, in effect, create an experiment in diversity. Sinha's observations highlight the ways in which the success of each country's reform may depend on its experimentation with the general model. The reader is allowed to draw initial impressions of the performance of these systems in the region using recent statistics provided on rates of return of private pension funds, rates of participation in private and public systems, and management fees across fund providers. …