El Salvador Proves Disaster of Chilean Model of Privatized Pensions

May 21 (EIRNS)--The small Central American nation of El Salvador privatized its pension system in 1998, following the advice of Jose Pinera, the fascist who privatized Chile's pension system in 1981 working as dictator Augusto Pinochet's Labor Minister. Nine years later, El Salvador's partially-privatized pension system is near collapse, following the pattern of every other country that has adopted the "Chilean model" of private pensions.

Pinera calls El Salvador a success story. But, according to a study by the Coalition for Dignified Maquila Employment (CEDM), the private system is rife with corruption, overburdened with debt, and serves only a fraction of the 1.4 million people who are officially enrolled. In fact, only 510,839 individuals of that total--or 17.5% of the economically-active population--even make regular payments into their accounts, as El Salvador's worsening economy has forced more and more workers into unemployment, unregistered work in the economy's "informal" sector, or opting for emigration to the United States. Yet the private pension funds, or AFPs as they are known, continue to collect commissions for managing private accounts, even if the enrollees have long since ceased to pay into them.

As in Chile, the El Salvador privatization left tens of thousands of workers at the mercy of financier and private sector interests. Many private companies simply steal the monthly payments deducted from workers' salaries, instead of depositing them, and few are prosecuted. The Salvadoran state, which still is responsible for providing a guaranteed minimum pension to those with no other coverage, as well as covering the debt it was saddled with when funds from the public system were transferred to the private system in 1998, is now in an untenable situation. As of June 2006, the state's pension obligations amounted to $8.2 billion, or 47% of GDP!