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Pension reform in Bolivia : innovative solutions to common problems

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  • von Gersdorff, Hermann

Abstract

Bolivia's bold program of pension reform involved the immediate closing down of the old pay-as-you-go system and its replacement by a defined-contribution system based on individual capitalization accounts and managed by the private sector. The pensions of the old system will be covered by the Bolivian Treasury. Workers will receive compensatory pensions for their contributions to the old system. These will be calculated on the basis of a simple formula that could be improved to reduce the cost of transition. To avoid high marketing costs, Bolivia has entrusted management of the system to two groups selected through international competitive bidding (to minimize fees). Individual accounts have been preallocated to those two groups on a regional basis or, in large cities, on the basis of the birthdays of affiliated workers. Competition for individual accounts will be allowed in the year 2000 and the market will be opened to other private pension-fund administrators (AFPs) in 2002. Proceeds from the capitalization program will be used to pay an annuity to all Bolivians 65 and older. Funds from the capitalization program will also be managed by the two selected AFPs. Custodianship has been entrusted to a multinational group offering global custodial services. AFP investments are only subject to upper limits, including relatively high limits for foreign assets. However, they must initially purchase a certain quantity of treasury bonds to help finance the cost of transition. Bolivian pension reform faces major challenges: a) To create a competitive market for management of pension fund resources and hence achieve competitive returns on investment and higher pensions; b) To eliminate the requirement of investment in treasury bonds; and c) To insulate the system from attempts to use AFP funds and capitalization proceeds for public projects. (One way to achieve this would be to transfer ownership of the capitalization proceeds to individual Bolivians.)

Suggested Citation

  • von Gersdorff, Hermann, 1997. "Pension reform in Bolivia : innovative solutions to common problems," Policy Research Working Paper Series 1832, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1832
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    References listed on IDEAS

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    1. Vittas, Dimitri & Iglesias, Augusto, 1992. "The rationale and performance of personal pension plans in Chile," Policy Research Working Paper Series 867, The World Bank.
    2. Andrew Ewing & Susan Goldmark, 1994. "Privatization by Capitalization : The Case of Bolivia - A Popular Participation Recipe for Cash-Starved SOEs," World Bank Publications - Reports 11679, The World Bank Group.
    3. Queisser, Monika, 1997. "Pension reform and private pension funds in Peru and Colombia," Policy Research Working Paper Series 1853, The World Bank.
    4. Vittas, Dimitri, 1997. "The Argentine pension reform and its relevance for Eastern Europe," Policy Research Working Paper Series 1819, The World Bank.
    5. Vittas, Dimitri, 1997. "Private pension funds in Argentina's newintegrated pension system," Policy Research Working Paper Series 1820, The World Bank.
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    Cited by:

    1. Marco A. Espinosa-Vega & Tapen Sinha, 2000. "A primer and assessment of social security reform in Mexico," Economic Review, Federal Reserve Bank of Atlanta, vol. 85(Q1), pages 1-23.
    2. Fernanda WANDERLEY, 2009. "Between reform and inertia: Bolivia's employment and social protection policies over the past 20 years," International Labour Review, International Labour Organization, vol. 148(3), pages 253-267, September.
    3. de Menil, Georges, 2005. "Why should the portfolios of mandatory, private pension funds be captive? (The foreign investment question)," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 123-141, January.
    4. Chong, Alberto & Yáñez-Pagans, Monica, 2019. "Not so fast! Cash transfers can increase child labor: Evidence for Bolivia," Economics Letters, Elsevier, vol. 179(C), pages 57-61.
    5. Yan Wang & Dianqing Xu & Zhi Wang & FanZhai, 2001. "Implicit pension debt, transition cost, options, and impact of China's pension reform : a computable general equilibrium analysis," Policy Research Working Paper Series 2555, The World Bank.
    6. Miguel Ángel Borrella Mas & Mariano Bosch Mossi & Marcello Sartarelli, 2016. "Non-Contributory Pensions Number-Gender Effects on Poverty and Household Decisions," Working Papers. Serie AD 2016-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    7. Matthew Carnes & Isabela Mares, 2016. "Redefining Who’s ‘In’ and Who’s ‘Out’: Explaining Preferences for Redistribution in Bolivia," Journal of Development Studies, Taylor & Francis Journals, vol. 52(11), pages 1647-1664, November.
    8. World Bank, 2002. "Bolivia : Poverty Diagnostic 2000," World Bank Publications - Reports 15382, The World Bank Group.
    9. Benjamin Kohl, 2003. "Restructuring Citizenship in Bolivia: El Plan de Todos," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 27(2), pages 337-351, June.

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