CAF supports Bolivian pension reform

With the aim of strengthening the structural transformation processes in its shareholder countries, the Andean Development Corporation (CAF) today approved a US$150-million loan for Bolivia aimed at improving the profile of the domestic public debt contracted by the country to finance its pension reform.

"Apart from the quantitative aspect, this operation confirms the Corporation's commitment to contributing to Bolivia’s efforts to resume the path of economic growth by smoothing the payment curve of the public debt and reducing fiscal pressure," said the executive CAF executive president.

García said the change of profile of the Bolivian domestic debt would release domestic financial resources, which will stimulate intermediation through the capital market and promote investment and sustainable development.

The loan, which has a maximum term of seven years and a one-year grace period, is to be executed by the Ministry of Finance and implemented through acquisition of non-negotiable bonds issued by the Bolivian Treasury.

As one of the strategic measures taken by the Bolivian government since 1996, the pension reform replaces an increasingly problematic system that resulted in the deterioration of the retirement pension, occupational hazard insurance, and made the pay-as-you-go system financially unviable in the long term.

Considered the most complete in Latin America, the reform transformed the previous system into an individually funded system in which members make contributions to personal accounts that generate interest and capital gains. At the end of their working life members have accumulated sufficient funds to finance their retirement pension.

The resources of the system, which is financially self-supporting, are managed by two pension fund administrators, under the supervision of the Superintendent of Pensions, Securities and Insurance.

In 2000 after five years of application of the reform, the number of members in the system had increased from 322,000 in 1996 to 633,000. The amount accumulated in the individual capitalization funds on December 31, 2000 totaled US$841 million, equivalent to 25% of all the deposits in the Bolivian banking system. This sum reveals the immense potential that pension funds have for developing the Bolivian financial system and capital market since these long-term funds are ideal for financing major investment projects.