The politics of pension reform reversal: a comparative analysis of Hungary and Argentina

Abstract

Argentina and Hungary have recently reversed the pension reforms of the 1990s that had instituted a mandatory private pillar and transferred savings under management by private pension funds back to the public sector. It is argued here that these latest reforms were a product of political dynamics that allowed the governments of Cristina Kirchner in Argentina and Viktor Orban in Hungary to enjoy legislative support and no significant popular backlash as the incumbents blamed the capitalisation system for failures in coverage, poor performance, and high administrative costs. Yet institutional considerations alone do not explain the type of pension reform enacted nor its timing. The need felt to finance short-term debt obligations and promote deficit reduction in a context of significantly restricted access to international credit was crucial in both countries. The two cases reveal that despite being the quintessential intertemporal political bargain, pension reform can be paradoxically determined by short-term fiscal considerations. The reversal of reforms originally aimed at relieving long-term budgetary pressures fuels concerns about the sustainability of the public pension system in indebted economies once again.