Document of The WorldBank FOR OFFICIAL USE ONLY Report No.: 18048 IMPLEMENTATION COMPLETION REPORT PERU PENSION REFORM ADJUSTMENT LOAN (LOAN NO. 4134--PE) June 23, 1998 Country Management Unit Bolivia, Paraguay and Peru Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No.: 18048
IMPLEMENTATION COMPLETION REPORT
PERU
PENSION REFORM ADJUSTMENT LOAN(LOAN NO. 4134--PE)
June 23, 1998
Country Management UnitBolivia, Paraguay and PeruLatin America and the Caribbean Region
This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.
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CURRENCY EQUIVALENTS(As of March 31, 1997)
Currency Unit = Nuevo Sol (S/.)US$ 1.00 = S/. 2.64
FISCAL YEAR OF BORROWERJanuary 1 - December 31
ABBREVIATIONS AND ACRONYMS
AFP = Administradora Privada de Fondos dePensiones (Private Pension Fund)
BCR = Banco Central de Reserva del Perui(Central Reserve Bank of Peru)
BR = Bono de Reconocimiento(Recognition Bond)
CV Cedula Viva (Public Employee Pension System)CONASEV = Comision Nacional Supervisora de Empresas y
Valores (National Business and SecuritiesRegulatory Commission)
DDSR = Debt and Debt Service ReductionDL = Decreto Legislativo (Legislative Decree)EPAL = Electricity Privatization Adjustment LoanFCRP = Fondo Consolidado de Reservas Previsionales
(Pension Reserve Fund)FSAL = Financial Sector Adjustment LoanIPSS = Instituto Peruano de Seguro Social
(Social Security Institute)MEF = Ministerio de Economia y Finanzas
(Economy and Finance Ministry)ONP = Oficina de Normalizaci6n Previsional
(State Pension Regulation Office)PAL Privatization Adjustment LoanPRAL = Pension Reform Adjustment LoanSAFP = Superintendencia de Administradoras Privadas de
Fondos de Pensiones (Superintendency of AFPs)SAL = Structural Adjustment LoanSNP Sistema Nacional de Pensiones
(National Pension System)SPP = Sistema Privada de Pensiones
Lead Economist: Ernesto MayTask Manager: Fred Levy
FOR OFFICIAL USE ONLY
TABLE OF CONTENTSPage
Preface ............................................. i
Evaluation Summary ............................................ ii
Part I: Project Implementation Assessment .................................. 1A. Background ............................................. 1B. Statement and Evaluation of Objectives ............................ ................. 3
Objectives ............................................. 3Evaluation of Objectives ............................................. 4
C. Implementation Experience and Results ............................................. 6Macroeconomic Context ............................................. 6"Cedula Viva" Reform ............................................. 7National Pension System Reform ............................................. 9Private Pension Funds Reform ............................................ 10Framework for Pension Asset and Liability Management ............................. 13Complementary Capital Market Reforms ............................................ 14
D. Major Factors Affecting the Project ............................................ 14Factors not subject to Government control ............................................ 14Factors subject to Government control ............................................ 15Factors subject to implementing agency control ........................................... 15
E. Project Sustainability ............................................ 15F. Bank Performance ............................................ 16G. Borrower Performance ............................................ 17H. Assessment of Outcome ............................................ 17I. Future Operations ............................................ 17J. Key Lessons Learned ............................................ 18
Part II: Statistical Annexes
Table 1: Summary of Assessments ......................... 19Table 2: Related Bank Loans/Credits ......................... 20Table 3: Project Timetable ......................... 20Table 4: Loan Disbursement: Cumulative Estimated and Actual .............. ........ 21Table 5: Key Indicators for Project Implementation .......................................... 22Table 6: Key Indicators for Project Operation: not applicable .................. ......... 22Table 7: Studies Included in the Project ................... ......................... 23Table 8A: Project Costs ............................................ 23Table 8B: Project Financing ............................................ 23Table 9: Economic Costs and Benefits: not applicable ...................................... 23Table 10: Status of Legal Covenants ........................................ 24Table 11: Compliance with Operational Manual Statements ............................. 26
.This document has a restricted distribution and may be used by recipients only in theperformnance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization...
Table 12: Bank Resources: Staff Inputs ........................... 26Table 13: Bank Resources: Missions ........................... 27
Part III: Appendices
A. Borrower contribution to the ICR ............................ 31
Map
This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be distributed withoutWorld Bank authorization.
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IMPLEMENTATION COMPLETION REPORT
PERU
PENSION REFORM ADJUSTMENT LOAN(LOAN NO. 4134-PE
PREFACE
This is the Implementation Completion Report (ICR) for the Pension ReformAdjustment Loan in Peru. A loan in the amount of US$ 100 million equivalent wasapproved on February 26, 1997 and made effective on February 28, 1997.
The loan was closed on March 31, 1997, after disbursement on March 6 and 14,1997.
The ICR was prepared by Frederic J. Truslow, Consultant, and reviewed byEdgardo Favaro, Lead Economist, the Caribbean Country Management Unit (former taskmanager for the operation); Emesto May, Lead Economist, the Country ManagementUnit for Bolivia, Paraguay and Peru; Fred Levy, Resident Representative Peru; SusanGoldmark, Sector Leader, Finance, Private Sector and Infrastructure; Noriko Iwase,Senior Country Officer for Peru, Latin America and the Caribbean Region and HemantShah, Principal Financial Officer, Financial Products and Services Department. TheBorrower provided comments that are included as an appendix to the ICR.
Preparation of this ICR effectively began during the Bank's completion mission ofMarch 1997. It is based on material in the project file and a review of the project inOctober, 1997 and January, 1998.
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IMPLEMENTATION COMPLETION REPORT
PERU
PENSION REFORM ADJUSTMENT LOAN(LOAN NO. 4134-PE)
EVALUATION SUMMARYIntroduction
In 1993, supported by various adjustment operations, Peru had taken major stepsto reverse the collapse of its economy and initiate a medium-term program ofmacroeconomic stabilization and structural reform, including a program of financialsector reform, and a comprehensive external financing package. Financial sector reformincluded: reducing state participation in banks, improving bank regulation, andreinforcing capital markets by strengthening regulations and introducing a private pensionsystem.
Preparation of a SAL II began at that time in support of these objectives, toaddress, among other matters, the comprehensive reform of the Government 'CedulaViva' pension system for public employees (CV) and its successor for both public andprivate employees (SNP), as well as the successful launch of the private pension system(SPP). An important concern during SAL II preparation was the covering of large futurepension liabilities and the avoidance of excess public spending. Consequently, theoperation foresaw the allocation of a substantial amount of privatization proceeds to beinvested for the payment of future pension obligations. In late 1996, set asides from theloan were designated to support the DDSR for Peru's financial creditors, and SAL II wasrenamed the Pension Reform Adjustment Loan (PRAL).
Project Objectives
The PRAL sought to increase domestic savings, strengthen the medium-termfiscal outlook, and broaden access to long-term external financing. Generally itsobjectives were aimed at keeping Peru's newborn pension reform on track. They calledfor the Government to (i) demonstrate its commitment to closing down the veryexpensive CV system, (ii) support the rapid expansion of the SPP as a substantialreplacement for the SNP, (iii) support strong investment portfolios for the AFPs whilereducing their costs and encouraging competition among them, (iv) reduce future fiscalburdens by allocating excess privatization proceeds to fund future pension obligations,and (v) expand the range of financial instruments in Peru's capital markets.
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In addition, the PRAL supported a simultaneous DDSR operation with Peru'sfinancial creditors. US$ 50 million of the proceeds of the PRAL were set aside tocollateralize this operation, along with a free-standing US$ 183 million DDSR loanpresented simultaneously for Board approval and US$ 80 million of a related JapanExport Import Bank loan tied to the PRAL. Dictated by the expected closing date of theDDSR operation, it was decided to transform the PRAL to a single-tranche operation dueto the lack of time to fully develop second-tranche conditions.
Implementation Experience and Results
The preparation period of the SAL II/PRAL extended from late 1993 to 1996.Pension reform would involve a multi-year, incremental process of building theinstitutions of the SPP while modifying and reducing costs of complex existing statesystems. The PRAL implemented the initial stage of this process as follows:
* CV benefits were capped, new inscriptions to the CV system were prohibited and ascheme was established to register all CV beneficiaries and eliminate ineligiblerecipients.
* The contribution rates and retirement ages of the SNP were changed to correspond tothose of the SPP, so that the SPP competed on equal or preferential terms with theSNP. As a result transfers from the SNP to the SPP surged and the SNP effectivelyceased to attract new subscribers.
- The quality of AFP investment portfolios was upgraded to reduce investment inGovernment obligations, increase investment in corporate stocks and debt, principallyin the non-financial sector, and lengthen debt maturities. This reduced risksassociated with sol-denominated investments and heavy concentration in thegovernment and financial sectors. Legislation was enacted to remove disincentives toAFPs competing on the quality of their portfolios and to authorize a greater range ofinvestments.
* US$ 1 billion of privatization proceeds were deposited in a newly created PensionReserve Fund (Fondo Consolidado de Reservas Previsionales) (FCRP) to fund longterm pension obligations and avoid excessive Government spending.
* A new capital markets law was enacted authorizing new financial instruments andimproving securities regulation.
To keep up momentum for this ongoing reform process, the PRAL also setforth as objectives future additional funding by the Government of the FCRP, theestablishment of budgetary rules to account explicitly for accrued pension costs, a studyof the SNP to reduce its costs and consider its conversion to a fully funded program and acontinuing review of AFP regulations to reduce cost and complexity.
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Implementation of post-disbursement steps contemplated by the program havetaken longer than anticipated. The Constitutional Tribunal held unconstitutional portionsof the principal law addressing CV cost reduction. The Government respondedvigorously, passing a corrective law, but the effort was delayed by about half a year. Aregister of CV affiliates has been created, and is expected by 1998 to be generatinginformation about the number, age, marital status and salaries of employees in the CVand SNP needed to control these systems and estimate future system costs.
The Government studies and reviews concerning the SNP and AFPs and pensionbudget rules have not yet been carried out. Regulations were issued in January 1998implementing changes to encourage more independence in AFP investment policies.
The Government and its implementing agencies, the MEF and the ONP, workedclosely with the Bank through the extended preparation period, and showed a high levelof commitment to pension reform. Coordination with the SAFP was limited and a set ofshared objectives was not developed. After loan disbursement the reform process lostmomentum, and the ONP's attention was absorbed by the Constitutional Tribunaldecision and the creation of the CV register. As a result, other planned steps weredelayed.
The Bank was effective in preparing the project and working with theGovernment to strengthen the SPP and cut back the CV in 1995-96, and to accomplishthe US$ 1 billion funding of the FCRP. The single-tranche structure of the PRAL didnot, however, provide support to follow-up measures, which would have helped to assurethe continuation of the reform process at the same pace into 1997. The Report considersthe sustainability of the reforms to be likely, in view of the established position the AFPshave gained as sources of investment funds and the diminishing number of SNP affiliates,and recommends that the Bank continue its participation in the reform process.
The PRAL also provided valuable and necessary support to the DDSR operationby collateralizing component loans, in conjunction with the Bank's simultaneous DDSRloan and loans from the Japan Export Import Bank and the Inter-American DevelopmentBank.
Summary of Findings, Future Operations, and Key Lessons Learned
Overall the Report rates the outcome of the PRAL as satisfactory because of theUS$ 1 billion funding of the FCRP, the establishment of SPP primacy over the SNP, theimprovement of AFP investment portfolios, and the closing of the CV, all accomplishedduring 1995-96. Post disbursement implementation was, however, delayed, particularlyin the implementation of contemplated studies of SPP and SNP reform, and the regulationof laws enacted in 1996. The Government has requested Bank assistance to carry out the
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planned studies. Future operations to continue and follow up the processes initiated bythe PRAL are considered highly advisable in order to maintain the commitment toreduction of costs and expansion of the SPP, the shrinkage of the CV and SNP, and thecontinued funding and strengthening of the FCRP.
Long-term Government commitment to the project is central to success.Persistence and flexibility are necessary for pension reform, since the success of newinstitutions requires changes in attitudes of Government officials and active and retiredemployees, and gradual adjustments in terms and levels of benefits to attenuate politicaland social impacts. A healthy economy that generates successful investment results forthe AFPs is a precondition for shrinkage of the SNP. Traditional public pension systemslack adequate records or controls, and thus priority should be given to creating anadequate infonnation base to control expenditures and project future costs.
The Bank should provide for ongoing supervision and follow-up in pensionreform which involves complex issues and requires multi-year involvement.
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IMPLEMENTATION COMPLETION REPORT
PERU
PENSION REFORM ADJUSTMENT LOAN(LOAN NO. 4134-PE)
PART I: PROJECT IMPLEMENTATION ASSESSMENT
A. BACKGROUND
1. The objectives of the Pension Reform Adjustment Loan (PRAL) built on thereforms begun by Peru in 1990. The first stage of reform involved a medium-termprogram of macroeconomic stabilization, a comprehensive external financing package,and structural reforms to return to a market economy. This process was supported by theStructural Adjustment Loan (SAL), Trade Policy Reform Loan (TPRL) and FinancialSector Adjustment Loan (FSAL) which were disbursed in 1993, and by the PrivatizationAdjustment Loan (PAL) and Electricity Privatization Adjustment Loan (EPAL).
2. The SAL sought to improve the provision of key public goods, while at the sametime reducing the scope of government intervention in the economy. It addressed reformsin the tax system, labor legislation and social security, among other matters. The TPRLsupported opening the economy to world competition through reduction of tariffs andnon-tariff barriers, elimination of subsidies and other distortions, and customs reform.The FSAL supported reforms to stabilize the currency, reduce the state role in thefinancial sector, strengthen the banking sector and develop capital markets. The PAL andthe EPAL provided additional support by promoting competition and privatization ofstate enterprises.
3. As part of the SAL program, pension reform was launched in 1992 and the first halfof 1993. A fully-funded, defined contribution, private social security pension system(SPP) was established as an alternative to the existing pay-as-you-go, defined benefit,public pension system (SNP). At the same time, the public system was separated fromthe health benefits system, the IPSS, and placed under the control of a new agency, theOficina de Normalizaci6n Previsional (ONP), dedicated to reducing its size and costs andtightening its administration.
4. The serious problems generated by the traditional pension system for governmentcivil service employees, known as the 'Cedula Viva' (CV), were not resolved by the1992-93 reforms. Efforts to close down the CV had been in the process since 1974, butthe system offered such attractive benefits (e.g., retirement at half pay after 15 years,benefits automatically readjusting to match current employee salary increases) that it hadbeen repeatedly reopened. Indeed, contrary to its legislative intent, the CV's coveragehad been extended beyond civil service employees to include higher salaried employees
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in independent state enterprises. Congress had refused in 1992 to cut back inappropriateexpansions of the CV, and its benefits were preserved, despite some ambiguities, in the1993 Constitution. As a consequence, the Government faced enormous unfundedliabilities, and the indexing of benefits to current salaries made necessary improvementsin public sector salaries fiscally impossible. Annual expenditures of the Government onCV pensions in 1996 were- about US$ 400 million, compared to US$ 207 million in 1997for the SNP. The present value of unfumded Government pension obligations totaledsome US$ 15 billion under the SNP, and US$ 7 billion under the CV, with CV per capitaactuarial costs twice those of the SNP.
5. By the end of 1994, efforts to promote the growth of the private system (SPP) hadslowed. Unlike Chile, Peru's Congress had refused to bar new affiliations to the SNP,and the SPP was at a competitive disadvantage to the SNP, having less favorablecontribution rates and retirement ages. New affiliations to the SPP had fallen from over40,000 per month in the first half of 1994 to under 5,000 per month in the first half of1995. Workers who switched from the SNP to the SPP were offered the incentive of aRecognition Bond (RB) certifying their right to a payment from the Government atretirement equal to the inflation adjusted value of the contributions they had made to theSNP prior to 1993. As time advanced, however, since RBs did not include 1993 and latercontributions, incentives for transfers by the under-30 age group fell.
6. In addition, the SPP was not achieving an efficient intermediation of funds; thecosts of the private pension fund administrators (AFPs) were high, and their portfolioswere remarkably similar and in some respects (heavy concentrations in short-term sol-denominated paper, particularly 28-day BCR notes, bank CDs, and subordinated bankbonds), relatively risky. In large part this was due to a lack of suitable investmentsavailable in the Peruvian capital market. Only about 10 stocks traded actively insubstantial volume, and there were few corporate bond offerings.
7. The SPP had been structured to discourage differentiation among AFPs' investmentportfolios. AFPs were required to create reserves if investment returns on their portfoliosvaried either up or down from the average 12-month real rate of return of all AFPs bymore than the lesser of 50 percent or 2 percentage points. These maximum and minimum'bands' around a benchmark return rate created a strong incentive for all AFPs to havevery similar investment portfolios. They thereby discouraged AFPs from competing onthe quality of their investments. AFPs are not permitted to offer more than oneinvestment fund, which further limits their ability to differentiate portfolios or offerportfolios designed to meet the needs of particular categories of workers, such as youngworkers with a higher tolerance for risk or older workers who would particularly wish toavoid loss of value in the short run.
8. A possible SAL II had been in discussion between the Bank and the Governmentsince the Fall of 1993 to continue the program of the previous SAL. The new operationwas initially envisioned as a multi-tranche loan addressing pension reform and a numberof other objectives, including trade, budgeting procedures, and land title reform. From
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the fall of 1994, large inflows of privatization revenues were also identified as adangerous incentive to excessive Government spending, and SAL II discussions includedthe allocation of privatization proceeds to cover long-term pension obligations. Inaddition, the weaknesses of the SPP and the costs of the CV and SNP demandedattention. As a result, the focus of the proposed SAL II came to center on pensionreform, with a secondary objective of trade reform.
9. In the fall of 1996, it was decided that 50 percent of the loan amount would be setaside to finance Peru's DDSR operation with its commercial bank creditors, and that thePRAL would be presented to the Board together with a related DDSR loan'. The PRALwas then designed as a single tranche loan focused on pension reform, and theestablishment and funding of the Pension Reserved Fund (FCRP) was made a principalcondition2. The possibility of a future follow-up operation was left open. The timing ofthe PRAL disbursement, although it had its own Board conditions, was closely tied to theDDSR operation.
B. STATEMENT AND EVALUATION OF OBJECTIVES
Objectives
10. The objective of the PRAL were consistent with the Bank's Country AssistanceStrategy and supported Peru's medium-term program of macroeconomic stabilization andstructural reforms through increasing domestic savings, strengthening the medium-termfiscal outlook, broadening access to long-term external financing, and providing a clearsignal of the Government's determination to stay the course. The macroeconomic policyframework called for a 3-5 percent rate of economic growth in 1996-98, a drop in theinflation rate to 6 percent by 1998, and a public sector overall fiscal balance equilibriumby 1998.
11. Consistent with the objective of broadening access to long-term external financing,50 percent of the loan amount of the PRAL was set aside to finance Peru's Debt and DebtService Reduction (DDSR) operation with its commercial bank creditors. Disbursedsimultaneously with the PRAL were a free-standing DDSR loan of US$ 183 million anda US$ 100 million loan by the Japan Export-Import Bank, of which US$ 80 million wascofinancing with the Bank and US$ 20 million with the IMF.
12. The objectives of pension sector reform were organized into five broad areas: (a)audit and reduction of the costs of the CV, (b) phase down of the SNP, (c) improving
' In accordance with the Board guidelines that a stand-alone DDSR loan should be no more than 15% ofthe three year lending program. For more information on the DDSR operation with commercial creditors,please see ICR on DDSR (Report No. 17779).2 Dictated by the expected closing date of the Brady Deal, the senior management recommended a singletranche operation. There was insufficient time to fully develop second-tranche conditions, which couldmake the release of the second tranche difficult and contentious.
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investment practices and reducing the cost and complexity of the SPP, (d) allocatingprivatization revenues to the coverage of the state's pension liabilities and making futurebudget liabilities and allocations more transparent, and (e) complementary capital marketreforms.
13. The objectives of the loan were stated as follows in the Memorandum of Presidenton the PRAL:
'CEDULA VIVA' REFORM:
Reducing the contingent obligations of the 'Cedula Viva' pension system, and setting thestage for the reform of the civil service by making it possible to delink CV pensionadjustments from civil servants' wage adjustments.
NATIONAL PENSION SYSTEM REFORM:
Encouragement of migration of workers and employees from the SNP to the SPP, andreducing the contingent obligations of the SNP.
PRIVATE PENSION FUNDS REFORM:
Increasing the menu of investment options available for those affiliated to the AFPs;more transparent disclosure of risk, and reducing complexity and associated costs of thecurrent regulatory regime.
FRAMEWORK FOR PENSION ASSET AND LIABILITY MANAGEMENT:
Increasing the transparency of the fiscal accounts; and contributing to a judicious use ofGovernment extraordinary revenues, in particular through the contribution of US$ 1billion in privatization proceeds to a separate fund to cover future government pensionobligations.
COMPLEMENTARY CAPITAL MARKET REFORMS:
Incorporating the use of new financial instruments into Peru's capital market; improvingthe regulatory environment; and expanding the range of instruments available forinvestment by institutional investors such as the AFPs.
Evaluation of Objectives
14. The pension reform process is technically complicated and constrained by politicalsensitivities and the need for institution building. It is thus incremental by nature. Eachstep needs to build on and be shaped by the prior one. For example, only after the SPPhad operated for several years did it become possible to take the further step ofstrengthening its ability to compete against the SNP, and only after the ONP, which took
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operating control of the SNP in January 1995, had developed its information base andstaff capabilities could it proceed to reform CV operations.
15. The PRAL program thus emphasized "next-step" objectives, which could be actedupon immediately, such as faltering SPP enrollments and the application of privatizationproceeds to fund pension obligations. It also recognized important longer-terrnobjectives, such as reducing contingent obligations of the SNP and CV, SNPrestructuring and SPP cost reduction, for which it was not presently practicable oradvisable to establish complete implementation plans, but which would provide the basefor future "next steps".
16. The objective of reducing the contingent obligations of the Cedula Viva system wascentral to fiscal health, but difficult to achieve to the extent that it required cutting backbenefits to retired teachers and other organized groups of traditional civil serviceemployees. The strategy selected was to focus on benefit reductions to high-salariedbeneficiaries employed by independent state enterprises, who could be singled out as alimited, privileged group. DL 817, enacted in April 1996, recognized the legal rights oflegitimate CV beneficiaries, but required all beneficiaries to re-register to establish theirbenefit rights and to eliminate fraudulent claims. To control outlays to state enterprisebeneficiaries, it undertook to audit their claims closely, to invalidate to the extent possibleclaims arising from wholesale incorporations of independent state enterprises into thesystem, and to impose a benefit cap equal to the salary of members of Congress. Asdiscussed below, significant difficulties have arisen in auditing claims and overcominglegal challenges to benefit reduction. At the same time, the objective of delinking CVpension adjustments from civil service wage adjustments, which was important for futureGovernment salary reform, was not implemented because of the resistance of traditionalcivil service groups and the concern that it would require amendment of the Constitution.
17. The objectives aimed at encouraging new affiliations to the SPP and transfers fromthe SNP addressed the most important immediate problem of the SPP, that of competitionbetween coexisting private and public pillars. Closing the SNP to new entrants wouldhave eliminated this problem, but this alternative had been rejected by Congress. Thealternative solution, which was adopted, was to improve the competitive position of theSPP against the SNP, and to encourage migration of employees, particularly those under30, from the SNP to the SPP.
18. The objective of reducing contingent obligations of the SNP was of central fiscalimportance but was not susceptible of immediate implementation other than throughpromoting migration to the SPP. The possibility was considered of converting the SNPto a fully-funded system, but the Government considered that this step would have to waituntil the SNP had been reduced in size, the ONP had developed more information andcontrols concerning SNP participants, the success of the SPP had been more clearlydemonstrated, and the CV audit completed. A study of possible modifications to the SNPwas included in the Letter of Sector Policy.
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19. The improvement of SPP intermediation focused on enhancing the mix ofinvestments in AFP portfolios and removing regulatory barriers to differentiation of AFPportfolios. Portfolio differentiation represented a significant innovation in the design ofprivatized social security systems. The Chilean model had discouraged performancevariation among AFPs for fear that it would increase volatility in portfolios and reduceconfidence in the system as a whole. Peru's system now permits competition amongAFPs on the basis of portfolio type and quality. This should result in higher investmentreturns and a better range of products for affiliates. This objective is supported by theobjectives for complementary capital market reforms.
20. The broader objective relating to SPP reform was to reduce complexity andassociated costs of the current SPP regulatory regime. This was to be addressed by thereview to be conducted by the Government after disbursement, since additional time wasrequired to develop an agreed program of regulatory and institutional change.
21. The objective of covering outstanding liabilities and contributing to a judicious useof Government extraordinary revenues, which led to establishing and funding with US$ 1billion the FCRP, stands out as a significant accomplishment of the PRAL. TheGovernment faced a massive liability for future pension obligations. At the same time, ithad substantial international revenues from privatizations, and needed to exercise fiscalrestraint. It was thus agreed to set a portion of these revenues aside as a separate fund toback pension obligations. This appears to be the first time that any government has setaside such a substantial reserve from its general funds for investment and subsequentpayment of medium and long-term pension obligations. The related objective ofincreasing the transparency of the fiscal accounts was left to post-disbursement action.The Government was to prepare budgetary rules and account for the costs of pensionobligations, and to program additional future contributions to the FCRP.
22. The complementary capital market reforms sought to introduce more sophisticatedlegal, regulatory, and financial structures into the capital markets to build on earlierreforms supported by the SAL and FSAL. This was a natural adjunct to pension reform,as it increased the investment opportunities for the private pension system. Itcomplemented the vigorous growth of the Peruvian securities markets and drew on theincreasing sophistication of the securities regulatory system.
C. IMPLEMENTATION EXPERIENCE AND RESULTS
Macroeconomic Context
23. Fiscal and monetary discipline together with structural reforms, greater publicorder, and targeted programs to alleviate the condition of the poor had remarkable resultsfrom 1990 to 1996: the economy improved noticeably, terrorism was nearly defeated, andthe percentage of families below the poverty line decreased. There was a steady declinein inflation, and Peru moved from virtual international isolation to become one of themost attractive emerging markets in the region. Higher confidence resulted in a large
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inflow of capital, which boosted aggregate demand and economic growth. Productivityincreased steadily and so did per capita income and consumption levels, especially in themore remote regions.
24. The rate of inflation fell steadily after 1990 as a result of tight fiscal and monetarymanagement. The elimination of credit from the Central Bank to the development banksdrastically reduced the rate of monetary expansion and inflation thus plummeted from410 percent in 1991 to 12 percent in 1996. Monetary expansion during this period hasresulted primarily from purchases of foreign exchange. However, the Central Bank hasapplied open market operations to absorb excessive increases in the money supplyresulting from its accumulation of foreign currency assets.
25. Fiscal policy has been tight, maintaining public sector spending in line with taxcollection, and financing the deficit entirely through external credits. Even though publicsector spending was drastically reduced at the beginning of the stabilization programs,most of the savings were brought about through the elimination of credit subsidies, thereduction of state participation in the financial system, and cuts in the deficit of stateowned enterprises; in other words, a reduction in government transfer payments, and notcutbacks in essential public services, which would have had negative socialconsequences.
'Cedula Viva' Reform
26. Progress towards the objective of reducing the contingent obligations and delinkingwage adjustments of the 'Cedula Viva' pension system is considered partial. The basicstrategy for achieving the objective of reducing costs of the CV was set by DL 817,enacted on April 23, 1996. This law was enacted under a general delegation by theCongress to the President to legislate as to matters enhancing employment. It: (i)permitted public employees to transfer from the CV to the SPP and established arecognition bond and other incentives for such transfers, (ii) authorized the ONP to auditfor legitimacy all CV benefit claims, and (iii) set a ceiling for CV pensions at the level ofremuneration of members of Congress. It acknowledged the legal rights of CVbeneficiaries, but required that beneficiaries re-register to prove their rights, and sought toestablish a special administrative and judicial regime to rule on CV pension issues.
27. DL 817 was a substantial advance in that it firmly committed the Government toclosing the Cedula Viva system. In 1992, Congress had rejected DL 763, enacted by thePresident to cut back inappropriate incorporations of nationalized state enterprises intoCV during the previous Administration, but did thereafter delegate to the President thepower to legislate as to pensions. DL 817 contained firm measures to close and cut backillegal benefits under CV, and the ONP vigorously administered the law.
28. After disbursement of the PRAL, however, policy implementation was set back byan adverse decision of the Constitutional Tribunal on April 23, 1997. This heldunconstitutional DL 817 to the extent that it (i) authorized the ONP to invalidate pension
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benefits without judicial action, (ii) eliminated time limitations under previous laws onfinding benefits invalid, (iii) imposed benefit caps retroactively, and (iv) created a specialsystem of ad hoc judges for CV cases. DL 817 contained a number of provisions seen asinfringing the independence of the judiciary, and thus proved difficult to defend in thecourts. In response to the Tribunal's decision, Congress passed Law 26835 on July 3,1997. This law provided for court review of ONP decisions as to pension benefits, settime limits for invalidation of benefits, provided a system of benefit caps effective July 1,1996, and encouraged settlements of disputes by relieving pensioners under audit whosettled disputes voluntarily from the obligation to return excess benefits.
29. The ONP gave first priority under the revised regime to registering all active andretired CV beneficiaries, to obtain, for the first time, the information base necessary toinvalidate unlawful claims and accurately estimate future obligations. Over 320,000potential beneficiaries, of which 60,000 are active and 260,000 retired, have submittedaccount information to the register. The ONP is presently reviewing and cross-checkingthis information, so as to be able to provide program cost estimates later in 1998.Important progress has thus been made in obtaining the information necessary to manageand control the CV system.
30. The ONP has established a methodology for, and expects shortly to commencecontesting or negotiating disputed claims, with primary focus on large groups of highsalary beneficiaries from formerly nationalized state agencies with defective legalauthorizations. Many of these cases are in litigation. The ONP is also regulating thesystem of graded benefit caps created by Law 26835, which will apply public employeesalary scales in calculating benefit adjustments for higher-salaried state enterpriseretirees. The benefit caps will not change the existing linkage of CV pension adjustmnentsfor civil service retirees to wage adjustments of those civil servants, who are notreceiving benefits based on the high salaries of state enterprises, and there appears to beno legal basis to do so.
31. The decision of the Constitutional Tribunal did not invalidate the cap on benefitsequal to a Congressman's salary which was imposed by DL 817. Approximately 25% ofCV pensioners of state enterprises would have had benefits exceeding that cap. The lawthus resulted in an estimated US$34 million annual saving to the Government. Othersavings from the cost reduction program have not yet been determined. More personsthan anticipated have registered claiming to be CV beneficiaries, and no CVbeneficiaries have voluntarily transferred to the SPP. In presenting Law 26835 to theCongress, the Government estimated in June 1997 that some 40,000 CV beneficiariesmight be disqualified through the audit program, generating savings of about US$166million per annum, but the audit has not yet progressed to the point of determining actualsavings. The passage of Law 26835 by Congress has, however, strengthened the legaland political basis of the reform, and the register is substantially advancing theinformation base for control.
9
National Pension System Reform
32. Progress toward the objective of encouraging the migration of workers andemployees from the SNP to the SPP is considered substantial. The SPP significantlyenhanced its ability to become the system of choice for new entrants to the labor force,and win over from the SNP the bulk of the young workers who had joined the SNPduring the period 1993-96. The principal means of accomplishing this objective was Law26504 of July 1995, developed as part of the preparation of the PRAL, which equalizedcontribution rates and retirement ages for the two systems. DL 874 of November 1996increased contribution rates for the SNP by 2% above the SPP, and established apresumption in favor of inscription in the SPP.
33. DL 874 also created a new series of Recognition Bonds 1996 to take into accountcontributions to the SNP during the period 1993-96, creating an incentive for transfer tothe SPP by workers who would otherwise have lost the benefits of their contributions tothe SNP during that period. The Bank supported this change particularly to encouragetransfers by SNP affiliates aged under 31, estimated by the ONP to number 165,000 inOctober 1996. Regulations for the new BRs were issued in July 1997, and as yet theyhave not had an impact on affiliations. They are applicable only for transfers occurringbefore December 31, 1997. That date should be extended for another year to providetime for their promotion by the AFPs.
34. The effect of the foregoing changes and the CV reform is shown in weeklyaffiliations to the SPP. After an initial high pace of affiliation exceeding 10,000 per weekfrom January 1993 to mid 1994, affiliations dropped to 1,000 per week until June 1995.Coincident with the promulgation of Law 26504, affiliations rose to over 5,000 per weekfrom June 1995 to April 1996. Then there was a jump to 9,000 per week from April toSeptember 1996, coincident with the passage of DL 817 and apparently resulting fromconcerns about the future of the SNP generated by the CV reform. Since December 1996,affiliations have run at about 4,000 per week.
35. The Superintendency of the private insurance associations (SAFP) has calculatedthat 1,439,000 persons transferred from the SNP to the SPP during 1993-96, and 94,000more in the first half of 1997. Even without implementation of the BR 1996, 52,000 ofthese 1997 transfers were aged under 31, indicating a continuing migration to the SPP ofyounger SNP affiliates. It is significant that almost all of the 102,000 net new affiliationsto the SPP in the first half of 1997 were transfers from the SNP, including over 7,000 ofthe 11,000 new affiliates aged under 21. This suggests that many new entrants to thework force may first join the SNP and then transfer to the SPP, confirming theimportance of maintaining transfer incentives.
36. By December 31, 1997, 1.74 million workers were enrolled in the SPP, an increaseof 190,000 since the end of 1996; there were almost no net new enrollments to the SNP;and the SNP had been reduced to under 1 million, principally through transfers to the
10
SPP. Most of those remaining in the SNP were older workers whose age would notpermit them to build sufficient benefits under the SPP.
37. The ONP issued by the end of 1997, in fulfillment of a commitment by it to theIMF, formal certificates evidencing 36,901 BRs. Requests for 162,000 BRs in theamount of S/. 2,735 million had been received in acceptable form, and confirmations(constancias) had been issued for 158,000 BRs in the amount of S/. 2,668 million.
38. Progress toward the objective of reducing the contingent obligations of the SNP isconsidered partial. The ONP does not have accurate calculations of enrollment in theSNP, but has been advised by the IPSS, which keeps enrollment records, that the numberof SNP active affiliates fell by about 370,000 from September 1995 to December 1996,roughly consistent with the growth of the SPP during this period. The ONP lacks theinformation as to the ages, salaries, marital status and demographics of SNP affiliatesnecessary to estimate the effect of this reduction on future benefit obligations. Costsinclude approximately US$ 0.43 billion in present value of BRs requested for issuancethrough December 1997, all of which are fully funded by the FCRP. It appears likely thatthe present value of all BRs, including bonds still to be requested, will be about US$ 1billion.
39. The Government can still significantly reduce the contingent obligations of the SNPthrough encouraging transfers to the SPP. Transfers still account for most newenrollments in the SPP, and would presumably be increased if the Government extendedeffectiveness of the BR 1996. In addition, the Letter of Sector Policy called for theGovernment to prepare a study, in the first half of 1997, analyzing the state of the SNPand addressing the costs and benefits of alternative courses of action to reduce thecontingent obligations of the SNP, including consideration of its phase-out ortransformation into a fully financed pension regime. In the second half of 1997, theLetter of Sector Policy called for Government design and implementation of necessarychanges in the pension regulatory framework. The ONP has commenced a market studyto determine the reasons workers remain in the SNP, in order to better design strategies toencourage transfers to the SPP.
Private Pension Funds Reform
40. Progress toward the objectives of increasing the menu of investment optionsavailable to those affiliated to the AFPs and a more transparent disclosure of risk isconsidered partial. Progress has been made in improving the quality of AFP investmentportfolios. In the fall of 1995 the Bank suggested that (a) too much AFP investment wasconcentrated in very short-term debt (about 50 percent of all debt instruments hadmaturities of 90 days or less at year end 1994 and 1995, and only 36 percent in 1994,increasing to 45 percent at the end of 1995, had maturities of over 360 days); (b) stockinvestments were under-represented in the portfolio (14 percent at the end of 1994 and 18per cent at the end of 1995); and (c) the Government appeared to be fostering substantial
11
AFP investment in short-term Central Bank sol-denominated notes to sterilize domesticcurrency issued for purchases of foreign exchange.
41. By mid 1996, the AFPs reduced their investment in Government obligations,particularly including BCR short-term paper, from about 23 percent of portfolios to under1 percent, and increased correspondingly their investments in corporate bonds and non-financial entity stocks. By the end of 1996, 72 percent of AFP portfolio debt hadmaturities over 360 days, only 13 percent had maturities under 90 days, and investment inequities had increased to 32 percent. Holdings of Government obligations had remainedat 1 percent. The portfolio was, for the first time, invested almost as much in non-financial sectors as in the financial sector. While the proportion of sol-denominated todollar denominated debt remained at 4 to 1, the higher proportion of longer maturitiesmeant that more sol debt was indexed, and there was less risk of loss due to currencydevaluation. At the end of 1997 non-financial sector investments exceeded financialsector investments, and the proportion of sol-to dollar-denominated debt was 3 to 1.
42. It was possible to make these changes in the AFPs' investment mix despite thegrowth of portfolios from SI. 560 million at the end of 1994 to SI. 1.35 billion at the endof 1995 and to SI. 2.47 billion during 1996, because the supply of corporate equity anddebt investments had substantially increased. AFP portfolio holdings of debt withmaturities over 360 days increased from SI. 175 million at the end of 1994 to SI. 491million at the end of 1995 and SI. 1.2 billion at the end of 1996. Equity holdingsincreased from SI. 79 million to SI. 244 million to SI. 787 million for the same periods.
43. In 1996, about 13 percent of AFP portfolios (declining to 10.5 percent in December1997) were invested in subordinated bank bonds, taking an equity risk for a returnappropriate to a fixed income security. The Government is considering the extent towhich such investments should be limited or classified as equity in line with thecontinuing prudential limitations on equity investment.
44. AFPs were authorized in September 1997 to invest in structured bonds (medium-term corporate bonds which pay at maturity the principal plus a return based on the gainon a basket of publicly-traded stocks), and were authorized in January 1998 to invest incertain of the most widely traded unrated stocks, to be designated by the SAFP.Authorization is expected for AFPs to invest up to 5 percent of portfolios in Peru's BradyBonds. The Government is considering the extent of permitted investments in foreignsecurities.
45. The enactment of DL 874 in November 1996 cleared the way to removing theregulatory impediments to each AFP independently structuring its investment portfolio.It also encouraged fuller disclosure of the impact of AFP costs on portfolio returns, andexpanded the categories of securities in which AFPs can invest. DL 874 eliminated themaximum return requirement: that each AFP set aside in a reserve investment earningswhich exceeded by more than the specified margin the average return on all AFPportfolios. It retained but softened the minimum return requirement, leaving to the
12
SAFP, with MEF approval, to determine the earnings level below which an AFP wouldbe required to provide reserves. In addition, it required that rates of return on investmentportfolios be reported net of fees charged by the AFP, thereby permitting andencouraging affiliates to take into account AFP costs in evaluating their performance.
46. The Bank had recommended elimination of the minimum return requirement,because there was ample incentive for an AFP to maximize its investment return, thepresence of any restrictive minimum profitability requirement would tend to discourageinvestment in more volatile but potentially higher yielding securities, and the tendency touniformity of portfolios was principally a result of the minimum return requirement. Theregulation modifying the minimum return was issued in January 1998. It requires that theinvestment return of each AFP portfolio not be less than the lower of (a) the averagereturn of all AFP portfolios minus 3 percentage points and (b) 25% of the average returnof all AFP portfolios, but also requires that the real return in any case not be less than 0.The average return will be determined over a moving 60 month period, significantlyloosening the previous 12 month test. The Government will be monitoring the effect ofthis change on portfolio differentiation.
47. The requirement of DL 874 that rates of investment return be reported net of feeshas not yet been implemented by regulation. Care is needed in order not to overstate theimpact of fees on investment returns in the initial years of AFP operation. AFPs arerequired to set fees, and also collect contributions to the retirement fund, as a percentageof salaries. Presently AFP fees approximate 2.3 percent, and contributions are set at 8percent, of salaries. Monthly fees are thus a very high percentage of monthlycontributions, but a declining percentage of cumulative contributions. Since earnings onthe retirement fund are a function of cumulative contributions, they will be exceeded byfees in early years, but will be less and less impacted by fees over time.
48. Progress toward the objective of reducing complexity and associated costs of thecurrent regulatory regime is considered partial. The Letter of Sector Policy called forreviewing present regulations during the first half of 1997 to explore possible reductionsin complexity and cost. Some reduction of regulatory complexity has been accomplishedthrough DL 874, and terms of reference are being prepared for the review of presentregulations and costs called for the Letter of Sector Policy. To accomplish such a reviewthe MEF should work in close coordination with the SAFP and the AFPs, but therelationships between these agencies have not been close, and the SAFP has resistedloosening its detailed regulatory control over the AFPs. The SAFP is interested inexpanding voluntary investment by AFP affiliates and serving the informal and self-employed sectors and does favor increased competition among AFPs and reduction intheir costs. It is doubtful, however, that the AFPs can achieve these objectives unlesscosts and regulatory complexity are further reduced.
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Framework for Pension Asset and Liability Management
49. Progress toward the objective of increasing the transparency of the fiscal accountsis partial. The ONP has not yet issued the periodic estimates of actuarial costs ofpension obligations under the SNP and CV contemplated by Law 26504, nor has it issuedthe related budgetary rules contemplated by the Letter of Sector Policy. The ONP, asdescribed above, has made substantial progress through the register created under DL 817toward determining the characteristics of its CV beneficiaries, and anticipates having byearly 1998 sufficient information to estimate the actuarial cost of CV pension obligations.The IPSS initially inscribes affiliates in the SNP but does not have a system foridentifying and enumerating affiliates. It is presently collecting information as to ages,marital status and salaries of affiliates. The ONP is testing a system, to be in place bymid 1998, for issuing mechanized electoral identification cards (libretas electorales) toSNP affiliates to permit their ready identification, simplify payment, and assist incontrolling costs.
50. Progress toward the objective of contributing to a judicious use of Governmentextraordinary revenues is substantial. The Government established the Pension ReserveFund -- Fondo Consolidado de Reservas Previsionales (FCRP) -- to back pensionobligations as part of DL 817 in April 1996. The decree establishing the regulatoryregime for the FCRP allows the FCRP to (i) invest funds in the domestic market orabroad, (ii) subcontract one or more administrators to manage the FCRP investmentportfolio, and (iii) invest no more than 5 percent of the funds in public sector debt of theGovernment. The funds of the FCRP are declared to be exempt from embargo orattachment, and may be used only for payment of pension obligations. The FCRP isobligated to report periodically on its investment performance. Under the Letter ofSector Policy, the Government is to prepare budgetary rules for and account for the costsof pension obligations, and to program additional contributions to the FCRP. TheGovernment designated the independent directors for the FCRP in November 1997, buthas not yet set up its investment scheme or selected investment advisors.
51. In February 1997 the Government transferred US$ I billion from Treasuryresources to the FCRP, significantly relieving future fiscal pressure on the Government.These funds and the returns thereon are designated for use exclusively for BRs createdunder existing laws. The present value of BRs issued or to be issued by the Governmentis estimated at about US$ 1 billion (assuming a 6% discount rate). As a result, all or mostof the Government obligation for BRs is expected to be fully funded. This could providea significant incentive to transfers to the SPP, particularly for employees in the 30-40 agecohort who may expect a lower pension under the SPP than the SNP but prefer thecombined security of a funded BR and a funded account with an AFP.
52. Unfunded liabilities for future pension obligations under the SNP and CV areestimated to exceed US$20 billion. The FCRP is designed to determine the size of thisfiscal gap and provide a repository for its funding in the future. As yet no furthercontributions to the FCRP have been programmed.
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53. In September, 1997 the FCRP regulation was amended to permit the ONP toadminister, as a restricted, non-embargable account, the funds transferred to the FCRPuntil it became operational. This was to avoid any possibility that the funds might bereturned to the general accounts if the FCRP did not become operational within thebudgetary period. In November, 1997 the Government named the two private directorsof the FCRP, and an initial organizational meeting was held in December.
Complementary Capital Market Reforms
54. Progress toward the objective of incorporating the use of new financial instrumentsinto Peru's capital market, improving the regulatory enviromnent, and expanding therange of instruments available for investment by institutional investors such as the AFPsis considered substantial. DL 874 expanded the categories of securities in which AFPscan invest to accommodate the new investment funds and securitized pools authorized byDL 861 and 862, the new capital markets laws. Although these laws are sometimeslacking in protections for corporate autonomy and business judgment, and permit a verybroad role for CONASEV, they are a useful advance toward a self-regulating market andappear to have been well administered by CONASEV. The investment vehiclesauthorized by these laws are by their nature complex and sophisticated. It will be sometime before investments of this kind are available on the Peruvian capital markets, andadequate for AFP investment. Still, the market has shown a capacity for sophisticatedinstruments, such as structured bonds, and it can be expected that the AFPs will play anactive role in fine-tuning the terms of the new instruments.
D. MAJOR FACTORS AFFECTING THE PROJECT
55. The substantial progress toward pension sector reform achieved by the PRAL isattributed to a solid working relationship between the Bank and the Government duringthe preparation period, which lasted from late 1993 to 1996. The strong Governmentcommitment contributed to the very positive outcome of revitalizing the SPP, closing defacto the SNP and de jure the CV, and providing substantial funding for the FCRP. Themove to a one-tranche operation did, however, limit the ability of the PRAL to supportthose pension reform objectives not accomplished by the end of 1996. In addition, Bankstaff continuity may have suffered as a result of Bank reorganization.
Factors not subject to government control
56. During the period of implementation of reforms, concerns for the Peruvianeconomy were raised by the Mexican currency and banking crisis of December 1994.This factor may have facilitated making a substantial deposit of revenues to the FCRP, asit encouraged the closing of future fiscal gaps and restraint in public spending. Thecontinuing stability of the economy and lack of severe adverse reactions in the capitalmarkets also help sustain the continued expansion of the SPP. Given the central role ofthe SPP in providing a private source of pension security and minimizing the future
15
growth of Government funded pension costs, the health of the economy and the growth ofinvestment opportunities in the Peruvian capital markets will continue to be importantinfluences on pension reform. The future growth of the SPP will also depend onaffiliations from the informal sector, estimated at 60 percent of the economically activepopulation.
57. The presence of strong groups benefited by the CV or SNP has limitedGovernment options, particularly in Congress's decision in 1993 not to close the SNP tonew entrants, and in the adverse decision of the Constitutional Tribunal. Nevertheless, itwas possible to increase SNP contributions and extend retirement ages in 1995 and toestablish a clear policy in DL 817 and Law 26835 to close and cut back the CV.
Factors subject to government control
58. The program represented by the PRAL depended upon a high level of Governmentcommitment to fiscal responsibility, control of public spending, reduction in costs of theCV and SNP and support for the SPP. The Government showed this commitment in theUS$ 1 billion set aside for future pension obligations, its willingness to equalize thecontribution rates and other terms of the SPP and SNP in July 1995, even increasing SNPcontribution rates above SPP rates in November 1996, and its decision to cap and auditCV benefits to a significant number of beneficiaries in April 1996. Pension reform is byits nature politically costly, since its adverse impacts are immediately imposed on aspecific population in a visible and quantifiable way, while its benefits are notimmediately quantifiable and come far in the future. This may have contributed to thereduction in Government attention to the PRAL objectives once the loan was fullydisbursed.
Factors subject to implementing agency control
59. The implementing agency for CV and SNP reform, the ONP, was highly committedto the success of the program, although its limited staffing required it to devote itsprincipal efforts to the CV audit and related litigation. The issuance of BRs andparticularly the implementation of the 1996 BRs, were thus delayed during mid 1997, aswere the budgetary rules for accounting for accrued pension obligations. The SAFP wasless committed to the program, and some lack of coordination with other governmentagencies occurred as a result. The program would have benefited from earlier efforts toestablish a single policy in favor of encouraging transfers from the SNP to the SPP, towhich the SAFP would adhere as well as the ONP and the MEF.
E. PROJECT SUSTAINABILITY
60. Program sustainability based on the objectives of minimization of participation inthe CV system, discouraging new inscriptions in the SNP, and continued expansion of theSPP is considered likely. Reduction of pension costs is closely related to the success ofthe broader program of economic liberalization supported by the SAL and FSAL, and to
16
the control of government spending necessary for macroeconomic stability -- lowinflation, sustainable growth, and improving international liquidity. Thus pension reformis likely to be sustained as a part of a continuing government commitment tomacroeconomic stability. Nevertheless, this assessment is based exclusively on anevaluation of the current government's plan of action, and the continuation of thesepolicies with a new government cannot be assured. The history of the CV system, whichwas closed down and reopened repeatedly since 1974, is not encouraging as an indicationof national self-discipline on pension benefits. Still, the Government has persisted in thecut back of the CV despite setbacks.
61. The long-term prospects for conversion of the present pay-as-you-go nationalpension regime into a fully funded defined contribution system are much strengthened bythe presence of other such systems in neighboring countries and the proven beneficialeffect of Chile's program on its capital market system. In addition, the SPP has reachedUS$1.5 billion in assets at year end 1997, and is expected to grow by year end 2000 toover US$ 4 billion. It will have become such an important source of institutionalinvestment funds in the Peruvian capital market that the broad reversal of the programdoes not appear likely. The quantity of private pension funds to be invested will inparticular tend to broaden the range of AFP investments and encourage diversification ofportfolios. Continued supervision and follow-up will be important in enhancingsustainability.
62. Without detracting from the sustainability of the broad course of pension reform,however, the sustainability of the program to reduce costs of the CV regime in the nearterm may be in question. The decision of the Constitutional Tribunal limits theeffectiveness of the cost saving devices of DL 817, and, despite Law 26835, theGovernment will be required to live with a very substantial CV cost burden, which alsocomplicates the rationalization of public sector pay levels.
F. BANK PERFORMANCE
63. Bank performance in the PRAL was satisfactory. The Bank identified theappropriate objectives in 1994 to keep the pension reform on track, and played a catalyticrole through the preparation and appraisal stage in focusing the Government's attentionon the measures necessary to reduce public expenditures, avoid using the AFPs tosterilize currency, keep the SPP growing and shrink the SNP, while obtaining a US$ 1billion set aside of revenues to fund future pension obligations. The quality of staffanalysis and effectiveness in communication contributed to the positive outcome of theprogram.
64. The beneficial effects of the loan were, however, truncated by having only onedisbursement. A second tranche would have reduced the risk of reduction ofGovernment's attention after disbursement. Follow-up was probably also adverselyaffected by the lack of a supervision mission and the impact of the reorganization on staffassignments.
17
G. BORROWER PERFORMANCE
65. Borrower performance in the PRAL was satisfactory in preparation and pre-disbursement implementation, although delays occurred in post-disbursementimplementation. The Government showed a high degree of commitment to the programn,and cooperated fully during preparation and appraisal. Those directing the program in theMEF were prepared to resolve disputes and insist on the program's objectives. The ONPperformed effectively to the extent of its powers and persisted in its mission to shrink theSNP and CV. A particular accomplishment was the passage of the corrective law afterthe adverse Constitutional Tribunal decision on DL 817. Coordination with the SAFPwas limited, so that a set of shared objectives was not developed, and the implementationof DL 874 was only partial. Program objectives were in a number of cases not followedup after disbursement of the loan.
H. ASSESSMENT OF OUTCOME
66. On the basis of the review of this program, the PRAL is rated as satisfactory. Theprogram achieved its principal immediate objectives prior to loan effectiveness: a clearcommitment to close and minimize the CV regime, the revitalization of the SPP andcorresponding shrinkage of the SNP, and the funding of future pension obligationsthrough the transfer of privatization proceeds to the FCRP. Sustainability is consideredlikely. The PRAL provided needed support for the DDSR operation, which closedsuccessfully, substantially reducing Peru's debt service.
67. The effect of these steps is that Peru has turned the corner on pension reform. It hascommitted itself to the closing of Cedula Viva and achieved the defacto if not dejureclosing of the SNP. The SPP thus becomes the principal focus for future progress. Thediversification of AFP portfolios and establishment of incentives for the transfer ofyounger affiliates from the SNP to the SPP, establishment of budgetary rules for pensioncost accounting, and the audit of the CV system have been initiated, but not advanced tothe point that completion is assured. Planning for the simplification of SPP regulation,reduction of SPP costs, and the possible conversion of the SNP to a fully-funded systemhad been placed on the agenda but not yet commenced.
I. FUTURE OPERATIONS
68. There are a number of areas in which future Bank operations could support thepension reform objectives not fully implemented by the PRAL. Cost reduction in the CVprogram will continue to be a fiscal priority of the Government. The phasing out of theSNP or its transformation into a fully funded pension system could be advanced throughcontinued Bank technical and financial support. The simplification of AFP regulationand reduction of AFP costs should be explored so as to enhance competition among AFPsand make the SPP more attractive to the self-employed and informal sectors. A programfor additional funding and an investment regime is needed for the FCRP.
18
69. A problem in the SPP which was not a focus of the PRAL but merits attention isthat contributions for 50% of employees are paid late to the AFPs, mostly becauseemployers postpone such payments to finance other operating costs. This issue wasaddressed through tightened enforcement in the regulations issued in January 1998. Itwill be essential for the future health of the SPP to preserve strict penalties against suchpractices.
70. The most fruitful areas for future Bank focus are the simplification of the SPP andthe restructuring of the SNP to a fully funded system. It is widely recognized that thecosts and complexity of the regulations controlling the AFPs make it difficult for the SPPto attract voluntary savings, and thus to expand into the informal sector and to serve theself employed. The SNP continues to generate high future obligations, which could bereduced if an adequate funded or partially funded alternative structure can be devised.The Bank can provide useful support in addressing these complex issues, mostimmediately through its participation in the studies of the SNP and SPP presently beingprepared by the Government.
71. The difficulty in projecting future costs of the SNP and CV arises directly from lackof basic information about the number, age, salaries, and marital status of affiliates inthese programs. ONP controls over and information about the SNP need to be improvedin the future.
J. KEY LESSONS LEARNED
72. Long-term Government commitment to the project is central to success.Persistence and flexibility are necessary for pension reform, since the success of newinstitutions requires changes in attitudes of Government officials and active and retiredemployees, and gradual adjustments in terms and levels of benefits to attenuate politicaland social impacts. A healthy economy that generates successful investment results forthe AFPs is a precondition for shrinkage of the SNP. Traditional public pension systemslack adequate records or controls, and thus priority should be given to creating anadequate information base to control expenditures and project future costs.
73. The Bank should provide for ongoing supervision and follow-up in pension reformwhich involves complex issues and requires multi-year involvement.
PART II: STATISTICAL ANNEXES
19
Table 1: Summary of Assessments
A. Achievement of Substantial Partial Negligible Not ApplicableObjectives (1) ( ) (1) (1)
Sector policies ] L II]Financial objectives L 0Institutional development 0I I/ L Physical objectives LI LI LIPoverty reduction / F V
Gender issues L L VOther social objectives L L I IEnvironmental objectives LI FI I]Public sector management I L/ 0 LPrivate sector development /L 3 LIOther (specify) [ LI
B. Project sustainability Unlikel Uncertain(/) (1/) (1)
C. Bank performance Highly satisfactory Satisfactory Deficient(1) (1) (1)
Identification L I [Preparation Assistance 0 []Appraisal L J LSupervision L Ln
D. Borrower Performance Highly satisfactory Satisfactory Deficient(1) (1) (/)
Preparation 0 / -IImplementation L / L
E. Assessment of outcome Highly Highlysatisfactory Satisfactory Unsatisfactory satisfactory
LV LI LIO ~~ ~ ~ ~ ~~~~~ / O
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Table 2: Related Bank Loans/Credit
Loan/credit title Purpose Date of approval StatusPreceding operations1. Trade Policy To support the 02/04/92 FullyReform Loan Government's medium disbursed.(3437-PE) term program of trade
policy reform.2. Structural To support the 03/26/92 FullyAdjustment Loan Government's medium disbursed.(3452-PE) term program of
macroeconomicstabilization and broad-base structural reforms
3. Financial Sector The Government's 6/17/92 FullyAdjustment Loan program of disbursed.(3489-PE) comprehensive
financial reform withparticular reference tobanking and capitalmarkets.
The Trade Policy Reform, Structural Adjustnent and Financial Sector Adjustnent Loans were all quickdisbursing loans, designed to support Peru in its macroeconomic and structural reform efforts in the contextof clearance of arrears to the Bank at end- 1992.
Table 3: Project Timetable
Steps in Project Cycle Date Planned Date Actual/LatestEstimate
Preparation October 1993 November 6-21, 1995Appraisal 1995 September 16-20, 1996Negotiations September 1996 November 18-22, 1996Letter of Development Policy October 1996 November 25, 1996Board Presentation November 6, 1996 February 11, 1997Signing November 1996 February 26, 1997Effectiveness November 1996 February 28, 1997Disbursement November 1996 March 6 and 14, 1997Project Completion December 1996 February 28, 1997Loan Closing December 1996 March 31, 1997
21
Table 4: Loan Disbursements: Cumulative Estimated and Actual(US$ million equivalent)
FY95 FY96Appraisal Estimate 100Actual _ 100Actual as % of Estimate % 100%Dates of Final Disbursement March 6 and 14, 1997
22
Table 5: Key Indicators for Project Implementation
IndicatorChange in average Rate of January-June 1995: 3,770Affiliation to SPP before andafter enactment of Law 26504 July 1995-April 1996: 25,160(July 1995) and DL 817 (April1996 (affiliates/month) May-October 1996: 44,318Increase in workers in 20-31 Economically Active Population 12/31/94 12/31/95 12/31/96age cohort affiliated with SPP Total--formal dependent sector 2,657,000 2,782,000 2,897,000as percentage of formal work SPP affiliates under 31 414,546 463,201 656,859force. as percent of Total 15.6 16.6 22.7Earnarking of Future NonePrivatization Proceeds to FCRP l
Change in Composition of 12/31/94 12/31/95 12/31/96 12/31/97AFP Investment Portfolios AFP Debt Investments:
maturities under 91 days 51.8 % 49.9 % 13.4 % n.a.maturities over 360 days 36.3 44.5 71.8 n.a.
Composition of AFP Portfolios(a) by type of instrument:
Table 6: Key Indicators for Project Operation: not applicable
23
Table 7: Studies Included in Project
Study Purpose as Defined at Status Impact of StudyAppraisal/Redefined
1. Canales-Kriljenko, Jorge Draft prepared for LAI CO CompletedIvan, Social Security in Peru: division of World Bank. December 1991Current Situation andReform2. Iglesias P., Augusto, Completed AugustComentarios al Sistema de 1993A.F.P. en Peru.3. Knaudt, Susana, Peru: Completed JulyInstituto Peruano de 1991.Seguridad Social (IPSS):Policy Issues.4. Hemant Shah, Toward CompletedBetter Regulation of Private November 1996Pension Funds5. Monika Queisser, Pension Completed JulyReforms and Private Pension 1997Funds in Peru and Colombia.
Table 8A: Project Costs
Appraisal Estimate (US$M) Actual (US$M)
TOTAL 100 100
Table 8B: Project Financing 1
Source Appraisal Estimate (US$M) Actual (US$M)
IBRD (PRAL) 100 100IBRD(DDSR) 183 183JEXIM Bank 80 80
I The DDSR loan of $183 million together with $50 million set aside under the PRAL and JEXIM's $80 million were used to support Peru's commercial
debt education operation.
Table 9: Economic Cost and benefits: not applicable
Table 10: Status of Legal Covenants
Loan No. The Borrower shall open, prior to furnishing to the Bank the first4134-PE 2.02 (b) 1 C request for withdrawal from the Loan Account, and thereafter Fulfilled
maintain in its central bank, a deposit account in dollars on termsand conditions satisfactory to the Bank.
The Borrower may use a portion of the proceeds of the Loan, not toexceed $50,000,000 ("Set-aside Funds"), for the implementation of
2.02 (d) 3 C the Financing Plan. If the Set-aside Funds have not been fully Fulfilleddisbursed by March 15, 1997, or such later date as approved by theBank, the undisbursed amount of Set-aside Funds may bewithdrawn by the Borrower and deposited in the Deposit Account.
2.03 10 C 3/31/97 The Loan Closing Date shall be March 31, 1997 or such later date Fulfilledas the Bank shall establish.
3.01 (a) 9 c The Borrower and the Bank shall, from time to time, exchange Fulfilledviews on the Program and the 1996 Financing Plan.
The Borrower shall provide the Bank a report on the Program in Fulfilled3.01 (b) 9 C such detail as the Bank shall reasonably request.
The Borrower shall exchange views with the Bank on any proposedaction to be taken after the disbursement of the Loan which would
3.01 (c) 9 C have the effect of materially reversing the objectives of the Fulfilled
Program.
Upon the Bank's request, the Borrower shall have the Deposit
3.02 (a) I CP Account audited in accordance with appropriate auditing principles On-goingconsistently applied by independent auditors acceptable to theBank.
Upon the Bank's request, the Borrower shall furnish to the Bank inno later than six months a certified copy of the report of such auditby said auditors, of such scope and in such detail as the Bank shallhave reasonably requested.
Table 10: Status of Legal Covenants (continued)
Loan No. Upon the Bank's request, the Borrower shall furnish to the Bank4134-PE 3.02 (c) I C such other information concerning the Deposit Account and the Fulfilled
audit thereof as the Bank shall have reasonably requested.
5 01 (a) 12 C The Borrower's macroeconomic policy framework is consistent Fulfilledwith the objectives of the Program.
The Bank is satisfied, after an exchange of views described in5.01 (b) 12 C Section 3.01 (a), with the progress achieved in carrying out the Fulfilled
Program.
Covenant Types Present Status: L
I = Accounts/audits C = covenant complied with2 = Financial Performance / revenue CD = complied with after delay3 = Flow and utilization of project funds CP = complied with partially4 = Counterpart funding NC = not complied with5 = Management aspects of the project or NYD=not yet due
execution agency6 = Environmental covenants7 = Involuntary resettlement8 = Indigenous people9 = Monitoring, review, and reporting10 = Project implementation not covered by
categories 1-911 = Sectoral or cross-sectoral budgetary or
other resources allocation.12 = Sectoral or cross-sectoral policy/
regulatory / institutional action13 = Other
26
Table 11: Compliance with Operational Manual Statements(There was no case of non compliance with Operational Manual Statements)
Table 12: Bank Resources: Staff Inputs
Stage of Project Cycle Planned ActualWeeks US$ Weeks US$ 000
Preparation to Appraisal N/A 54.6 198.0Trust Funds1 N/A 36.4 60.5
I/ TF 020535, TF023109, TF0254102/ There was no supervision mission since PRAL was a single-tranche adjustmentoperation. Supervision was related to effectiveness and pre-payment in FY 97.
27
Table 13: Bank Resources: Missions
Performance Rating
Stage of Project Month/Year Number Days in Specialized Staff Implementation DevelopmentCycle of Field Skills Represented Status Objectives
The reform program implemented through the Pension Reform Adjustment Loan (PRAL),signed with the World Bank in February 1997, was implemented in the context of soundmacroeconomic policy-making by the Peruvian Government. The project components have allowedfor a better functioning of the market economy through the promotion of a regulatory framework of apension system which promotes economic efficiency, as well as through the development of capitalmarkets. Furthermore, the project has contributed to generating a climate of confidence in Perui,thereby attracting increased flows of long-term foreign investment.
Introduction
The PRAL originated from the Structural Adjustment Loan II, prepared in 1993. It wasdecided that this loan would focus on support to the Peruvian Government in deepening pensionreform and capital market reform, which would allow for increased domestic savings, strengthenfiscal discipline in the medium term, and increase long-term foreign investment. Consistent with thisobjective, 50 percent of the loan amount went to a concurrent project, Debt and Debt ServiceReduction.
Loan Objectives
1) Pension System Reform. With the creation of a private pension system in 1992, workers werepermitted to open individual accounts with Private Fund Administrators (AFPs) as an alternative tothe state managed system. This was an important step towards a fully funded pension system.
a) Reform of "Cedula Viva" System. To reduce the contingent liabilities of the "Cedula Viva" systemand establish the base for civil service reform, by de-linking the two systems. Actions were taken toreduce costs and eliminate unauthorized benefits of the Cedula Viva system. In July 1997 the"Oficina de Normalizaci6n Previsional" (ONP) became the proper legal entity for pensionadministration, including registration and actuarial studies.
b) Reform of National Pension System. Create incentives for workers under the SNP to switch to SPPand to reduce the contingent liabilities of SNP. By October 1997, 146,866 workers had switched fromSNP to SPP and by May 31, 1998 the system had 1,819,254 participants. Close to one millionworkers remain in the SNP.
c) Reform of Private Pension Funds. Increase the available investment options for AFP members,achieve greater transparency in risk assessment and reduce the complexity and costs associated withthe actual regulatory framework. Capital market development in Peru has made a significantcontribution to pension portfolio diversification. The Regulations of the "Texto Unico Ordenado" ofthe SPP Law delineates investment guidelines and regulations for AFPs, characterized bytransparency and a long-term outlook. In response to the objective of a reduction in complexity andcost associated with the regulatory system, the SAFP has been charged with simplifying theadministration of SPP.
d) Development of a framework for Pension Asset and Liability Management. The ConsolidatedFund of Provisional Reserves was established in January 1997 to back the obligations under theauthority of ONP.
2) Complementary Reforms in Capital Markets. In 1992, the Stockmarket Law (LegislativeDecree 755) initiated the modernization of the capital market regulatory system. Since 1996 therehave been numerous additional reforms and improvements to capital markets regulations.
32
Lessons Learned
Role of the Bank Peru considers the PRAL to be a successful loan that contributed to theconsolidation of the reform of the pension sector and to the completion of the Debt and Debt ServiceReduction program. Thanks to a fluid exchange between the Bank and the Govemment, both partieswere able to fiurther focus the initial objectives of the SAL II into central objectives of the process ofreform consolidation - mainly pension reform and capital markets development - in the form of aquick disbursing loan.
Role of the Beneficiary. The goals established in the loan agreement were realistic enough to allowthe Govemment to comply with the stated objectives in the prescribed period of time. Peru began thereform process in the pension sector in 1992, and in only six years the system has supported themodernization of the financial sector, the labor market, and the insurance sector. It is significant tonote the tendency of new participants to join SPP, which forecasts full financing of the system. TheGovemment is aware that close attention should be paid to the long-term development of the SPP andSNP. A study is planned which will evaluate these two pension systems in order to make thenecessary reforms that will ensure an equitable and sustainable system in the long-term.
33
INFORME DE CIERRE DE PROYECTOPRESTAMO DE AJUSTE DE REFORMA DE PENSIONES
(Pension Reform Adjustment Loan - PRAL)
El programa de reformas amparado por el Prestamo de Ajuste de Reforma de Pensiones (PARP)acordado con el Banco Mundial en febrero de 1997, se desarroll6 en el marco de sanas politicasmacroeconomicas implantadas por el Gobierno Peruano. En este contexto los componentes delreferido prestamo han permitido un mejor funcionamiento de la economia de mercado mediante lapromoci6n de un marco regulatorio de un sistema de pensiones apropiado que promueve la eficienciaecon6mica y la competencia en el sector, asi como el desarrollo del mercado de capitales. Ello hacontribuido a generar un clima de confianza en el pais permitiendo atraer mayores flujos de inversi6nextranjera a largo plazo.
Introducci6n
El PARP tiene su antecedente en el SAL II cuya preparaci6n se iniciara en 1993, luego de que el paisadoptara una serie de medidas fundamentales orientadas a iniciar un amplio programa de reformasestructurales sustentado por tres operaciones con el Banco Mundial: el Programa de Ajuste del SectorComercio, el Programa de Ajuste del Sector Financiero y el Programa de Ajuste Estructural.
Este Prestamo se concibe inicialmente abarcando objetivos de reforma en sectores como agricultura,comercio, finanzas publicas, mercado de capitales y privatizaci6n. Posteriormente, se decidi6focalizar el prdstamo para apoyar al gobierno peruano en la profundizaci6n del programa de reformasdel sector pensiones y del mercado de capitales que permita aumentar el ahorro domdstico, fortalecerla disciplina fiscal en el mediano plazo y acceder al financiamiento externo de largo plazo.Consistente con este uiltimo objetivo, el 50% de los recursos del prestamo se destin6 al Programa deReducci6n de la Deuda y su Servicio.
El contexto macroecon6mico
La columna vertebral del programa econ6mico peruano ha sido la disciplina fiscal y monetaria. Elprograma se sustenta en un regimen de tipo de cambio flotante, aunado a un estricto controlmonetario, acompafiado de una politica fiscal austera, con una administraci6n tributaria eficaz y unferreo control del gasto puiblico.
La total apertura de la cuenta de capitales, conjuntamente con sanas politicas macroecon6micas yestrictas normas prudenciales y de supervisi6n bancaria, han reportado importantes beneficios. Estaspoliticas, ademas de haber contribuido a generar un clima de confianza, han permitido atraersignificativos flujos de inversi6n extranjera de largo plazo.
Desde inicios de 1993 y luego de las duras medidas de estabilizaci6n iniciales, el Peru ha crecido 5aflos consecutivos y lo ha hecho a una tasa promedio anual de 7.3%. Este crecimiento no ha estadobasado en la expansi6n del consumo ni en el estimulo del gasto fiscal, sino en la inversi6n (tantointerna como externa) del sector privado y en el reciente dinamico desarrollo de las exportaciones delos bienes no-tradicionales.
La aplicaci6n del Programa Econ6mico ha pernitido alcanzar un crecimiento sostenido con una bajatasa de inflaci6n. Asi la tasa de inflaci6n en 1997 fue de 6.5%, la mas baja en los ultimos 25 affos y eld6ficit del sector puiblico (excluidos los ingresos de privatizaci6n) ha alcanzado 0%. Por su parte latasa de inversi6n ha aumentado de 18.6% en 1993 a 24.7% en 1997 constituyendo la segunda tasa deinversi6n mas alta en Latinoamerica. El ahorro interno creci6 de 13% a 20% del PBI y casi el 90% de
34
los flujos de capitales privados extranjeros en los ultimos 5 afios se realizaron bajo la forma deinversi6n directa extranjera.
Finalmente la fortaleza de los indicadores macroecon6micos se refleja en que el crecimiento ha idoacompafnado por una constante acumulaci6n de reservas intemacionales netas que ascienden a US$10.3 mil millones equivalentes a 15 meses de importaciones, 6 veces la base monetaria y 80% de laliquidez total del sistema bancario. Se puede aseverar que en la actualidad el Perui cuenta con unacombinaci6n ideal de tasa de cambio flotante y una posici6n fiscal y monetaria fortalecida.
En relaci6n al servicio de la deuda peruana, la deuda del sector puiblico ha sido reprogramada en sutotalidad de acuerdo a la capacidad de pago del pais. Asimismo, no existe deuda interna ni deudaexterna de corto plazo.
Los objetivos en el mediano plazo incluyen una tasa anual de crecimiento de 6.5%, una continuareducci6n de la inflaci6n a niveles intemacionales hacia el fin de la decada, asi como una reducci6ndel deficit en cuenta corriente a menos del 3% para el afno 2002. Estos objetivos son resultado delcompromiso del Gobierno de mantener la estabilidad macroecon6mica y el fortalecimiento de lasreformas estructurales, incluyendo las de segunda generacion que ya han sido iniciadas. Sin embargo,para 1998 estos podrian verse mermados, en cierta medida, por los efectos de la crisis asiatica, asicomo por el fen6meno de El Nifno.
Objetivos del prestamo
a) Reforma del Sistema de Pensiones
La reforma del sistema de pensiones se inicia en 1992 con la promulgaci6n de la Ley 25897 que creael sistema privado de fondos de pensiones como altemativa al sistema de reparto vigente. Este nuevor6gimen permite a los trabajadores abrir cuentas individuales en las Administradoras Privadas deFondos de Pensiones (AFPs) recibiendo un Bono de Reconocimiento por las aportaciones pasadas yconstituye un paso esencial al lanzar un sistema de pensiones plenamente financiado.
Asi, en junio de 1993 entran en funcionamiento ocho AFPs, de las cuales actualmente operan cinco, alhaberse dado sendas fusiones de tres de ellas. El inicio de su funcionamiento estuvo caracterizado porla utilizaci6n de todos los recursos de las AFPs, lo cual motiv6 mayores requerimientos de capital yendeudamiento, que les permiti6 iniciar una fuerte campafia publicitaria y contar con una fuerza deventa de mis de 6 000 promotores.
Posteriormente, en julio de 1995 se promulg6 la Ley 26504, conocida como la Ley de Consolidaci6ndel Sistema Privado de Pensiones, que introdujo una serie de ajustes al regimen previsional privado afin de mejorar su aplicaci6n y desarrollo. Esta Ley modifica el Regimen de Prestaciones de Salud, elSistema Nacional de Pensiones, el Sistema Privado de Fondos de Pensiones y la estructura decontribuciones al Fondo Nacional de Vivienda (FONAVI), eliminandose las diferencias en las tasasde contribuci6n y edades de retiro entre el Sistema Privado de Pensiones (SPP) y el Sistema Nacionalde Pensiones (SNP). Ello promovi6 un aumento significativo de las transferencias de SNP al SPP yse redujo a su vez las obligaciones pensionarias contingentes del SNP.
En abril de 1996 se promulg6 el Decreto Ley 817 que aprob6 la Ley del Regimen Previsional a cargodel Estado que permiti6 reducir significativamente el impacto del regimen de Cedula Viva (CV) sobrelos egresos del Tesoro, estableci6 las bases para un sistema de contabilidad que cuantifica y reconocelas obligaciones contingentes de pensiones y cre6 un fondo fiduciario de pensiones para respaldardichas obligaciones. Mediante este Decreto se recupera la equidad del sistema de pensiones, segarantiza los derechos de los pensionistas del Decreto Ley 20530, se depura la planilla del Estado y seordena la administraci6n y financiamiento de las pensiones. Especificamente, este Decreto establece
35
sin ambigniedades el derecho de los empleados puiblicos a transferirse del CV al SPP; da autoridad a laOficina de Normalizaci6n Previsional para auditar todos los beneficios reclamados a traves deregimen de CV a fin de determinar su legitimidad, requiere que la ONP estime peri6dicamente elcosto actuarial de las obligaciones pensionarias resultantes de los regimenes SNP y CV y de emisi6nde Bonos de Reconocimiento; instituy6 el fondo fiduciario de pensiones, Fondo Consolidado deReservas Previsionales, para respaldar obligaciones pensionarias; estableci6 que los ajustes de laspensiones de los empleados de empresas estatales privatizadas se sujetaran a las mismas limitacionesque las pensiones del SNP; instituy6 incentivos para migrar del regimen de CV al SPP; y estableci6un tope a las pensiones de CV a nivel de la remuneraci6n de un miembro del Congreso.
Con el Decreto Ley 874 de noviembre de 1996 se incentiva la transferencia de trabajadores j6venesdel SNP al SPP. Este Decreto flexibiliza los criterios de elegibilidad para aplicar a un Bono deReconocimiento y da los primeros pasos para desincentivar las altas comisiones y otros cobros de lasAFPs y aumentar la competencia entre ellas. Tambien se elimina el uso de tasas de retorno dereferencia y "bandas" alrededor de dichas tasas para la industria de AFPs, aumentando asi losbeneficios obtenidos por una AFP con performance relativa superior y reduce las penalidades por unaperformance relativa inferior. Con ello se recoge la voluntad de consolidar y profundizar la coberturadel SPP, la que dada su naturaleza de largo plazo, requiere se posibiliten ajustes y mejoras paracompensar el esfuerzo individual con pensiones acordes a criterios de justicia y equidad.
Posteriormente en enero de 1997, mediante el Decreto Supremo 144-96-EF se reglamenta el FondoConsolidado de Reservas Previsionales sefialando su caricter de intangible y su finalidad de respaldarlas obligaciones de los regimenes previsionales a cargo de la Oficina de Normalizaci6n Previsional,mediante la inversi6n adecuada de los recursos que administra. En la misma fecha se autoriza latransferencia al Fondo de US$ 1 000 millones como respaldo para la emisi6n de los Bonos deReconocimiento. Este regimen regulatorio hace posible la transparencia del estado actual de activos ypasivos de los sistemas puiblicos de pensiones.
Por su parte la Ley 26835 de julio de 1997 establece que la ONP es la entidad competente parareconocer y declarar pensiones derivadas de derechos pensionarios legalmente obtenidos al amparodel Decreto Ley 20530.
En enero de 1998 se public6 el Decreto Supremo 004-98-EF aprobando el Reglamento del TextoUnico Ordenado de la Ley del Sistema Privado de Administraci6n de Fondos de Pensiones con el finde adecuar las medidas reglamentarias para la debida aplicaci6n del SPP. Posteriormente se haemitido resoluciones de la Superintendencia de Administradoras Privadas de Fondos de Pensionesaprobando los diferentes Titulos del Compendio de Normas Reglamentarias.
Al 31 de mayo de 1998 el nuimero de afiliados al Sistema Privado de Pensiones asciende a 1 819 254y el valor del fondo de pensiones es de S/.4 950 millones. La cartera del sistema privado de pensionesesta compuesta principalmente por acciones (34,3%), dep6sitos a plazo en soles (20,7%), bonos deempresas privadas (19,1%) y bonos subordinados (9,8%). Cabe sefialar que a partir del mes defebrero de 1998, los fondos de pensiones han realizado inversiones por primera vez en fondos deinversi6n alcanzando una participaci6n de 0,5%. La rentabilidad real del sistema entre abril de 1997 yabril de 1998 es en promedio de 10,36%.
Objetivos de la Reforma de Pensiones
> Reforma del Sistema de Cedula Viva
Los objetivos fueron reducir las obligaciones contingentes del sistema de pensiones de"Cedula Viva" y sentar las bases para la reforma del servicio civil, haciendo posible desligarlos ajustes en las pensiones de "Cedula Viva" de los ajustes de los servidores puTblicos.
36
El primero de los objetivos se ha alcanzado en la medida que a traves del Decreto Ley 817 seencaminaron las acciones tendientes a reducir los costos y eliminar beneficios no autorizadosbajo el regimen de "Cedula Viva". Asimismo, mediante la Ley 26835 de julio de 1997 sefortalece las bases legales de la reforma, al establecerse que la ONP es la entidad competentepara reconocer y declarar pensiones derivadas de derechos pensionarios legalmente obtenidosal amparo del Decreto Ley 20530. Cabe sefialar que actualmente ya no existe nuevasinscripciones bajo el sistema de CV.
La labor de registro y revisi6n de los beneficiarios del regimen viene realizandose por laONP, que ha alcanzado importantes avances. En ese sentido, se ha realizado la conciliaci6n,analisis, cruces legales y de Base de Datos de las Declaraciones Juradas y solicitud deexpedientes a entidades segun el hallazgo de inconsistencias en cuanto al derecho mismo,duplicidades, fallecimientos, derechos derivados caducos, y otros, utilizando la siguienteinformaci6n:
* Base de Datos de las Declaraciones Juradas del Registro 20530* Base de Datos de planillas enviadas por las instituciones* Base de Datos de Reniec (Identidad)* Matriz de derechos Legal segun arbol de decisi6n
Con la informaci6n anterior se esta diseiiando la metodologia para Ilevar a cabo el estudioactuarial que se preve terminar en el mes de setiembre.
> Reforma del Sistema Nacional de Pensiones
Se plante6 como objetivos el incentivar la migraci6n de obreros y empleados del SNP al SPPy reducir las obligaciones contingentes del SNP.
El primer objetivo se ha cumplido ampliamente. Los pasos iniciales en ese sentido se dieron atraves de la Ley 26504 y el Decreto Ley 874 antes comentados. Mediante este uiltimo se cre6en noviembre de 1996, el Bono de Reconocimiento 1996 y hasta octubre de 1997, 146 866afiliados del SNP se trasladaron al SPP, correspondiendo el 81% de este total a trabajadoresmenores a 40 afios de edad.
Cabe senialar que el promedio hist6rico de afiliaci6n semanal, hasta mayo de 1998, asciende a7 051 afiliaciones, habiendo sido el promedio semanal hist6rico maximo de 28 907afiliaciones al sistema, hecho que ocurriera en 1993, es decir al inicio de las operaciones delsistema. Es importante seflialar que durante los periodos posteriores a la emisi6n de lasnormas antes citadas se detectaron recuperaciones importantes en el promedio de afiliaci6nsemanal.
Al 31 de mayo de 1998, el sistema cuenta con 1 819 254 trabajadores afiliados, habiendoseobservado un incremento de afiliaciones entre 1996 y 1997 de 190 000 y entre 1995 y 1996 de422 087 comparado al incremento de 172 180 en 1995 respecto a 1994.
La ONP ha realizando el estudio "Frenos y Barreras hacia el Sistema Privado de Pensiones"para verificar las razones por las cuales afin permanecen trabajadores afiliados al SNP dondeactualmente se encuentran alrededor de un mill6n de aportantes. Este estudio se efectuo entres etapas: cualitativo (focus group), cuantitativo (1 400 encuestados en ciudadesrepresentativas) y por ultimo entrevistados de empresas grandes, medianas y chicas. Lasprincipales conclusiones de este estudio son:
37
a) El sector que ain no se traslada a las AFPs esta compuesto por empleados y obrerosde sueldos bajos (vigilantes, obreros de fabrica, artesanos, secretarias, counters deturismo, camareros de hotel y profesionales (profesores, contadores yadministradores) y se comprob6 que muestran gran desconfianza hacia el sectorprivado, representado en este caso por las AFPs
b) Este sector se considera laboralmente inestable bien sea por las caracteristicas delempleo o por decisi6n propia o del empleador. Algunas personas j6venes y de edadmedia hasta 38 aflos, prefieren no estar a la expectativa de una pensi6n de jubilaci6n einiciar un negocio propio y no trabajar 45 aflos para recibir una pensi6n bajacualquiera que fuere el sistema.
c) Existe desinformaci6n o poco conocimiento de ambos sistemas de pensiones yadicionalmente no comprenden el lenguaje ni de la publicidad ni de los promotores deAFPs.
d) La raz6n principal de su permanencia en el SNP es la seguridad de recibir unapensi6n, pues se trata de una entidad estatal con permanencia "asegurada" en eltiempo y gran nuimero de aportantes. Afirman que ello les genera mas confianza puesconsideran que nunca va a quebrar o desaparecer, como si puede ocurrir con las AFPs,a pesar que mencionan que Ias pensiones en el SPP son mas altas que en el SNP.Asimismo, sostienen que estan acostumbrados a recibir sueldos bajos y esperan quesu pensi6n en el SNP tambien lo sea.
e) En las entrevistas con Gerentes o Jefes de Personal del sector empresarial, se constat6que estos conocen los dispositivos sobre la incorporaci6n al SPP de los nuevostrabajadores. Sin embargo, se da el caso que dichos funcionarios "asesoran" a lostrabajadores y les sugieren incorporarse al SNP por resultar mas beneficioso debido alos sueldos bajos.
El referido estudio ha sido enviado a la Asociaci6n de AFPS.
En cuanto a la realizaci6n de estudios actuariales, la ONP hacia fin de aflo y de acuerdo con elPrograma de Recaudaci6n con SUNAT, tendrA los datos necesarios de los trabajadoresactivos. Asimismo, de acuerdo al Convenio con RENIEC (Registro Nacional de Identidad yEstado Civil) se ha poblado la base de datos a traves del otorgamiento de 177 mil LibretasElectorales Mecanizadas a los pensionistas que representan el 54% de la poblaci6n. Seculminara el proyecto en el mes de setiembre, pudiendose contar con los estudios actuarialesde este sector hacia fin de affo. Se estima que el estudio actuarial estara concluido haciaprincipios del segundo trimestre de 1999.
> Reforma de los Fondos Privados de Pensiones
Los objetivos establecidos para la reforma de los fondos privados de pensiones son aumentarel menu de opciones de inversi6n disponible para los afiliados a las AFPs, lograr mastransparencia en la informaci6n sobre riesgos y reducir la complejidad y costos asociados alregimen regulatorio actual.
El progreso en relaci6n a la diversificaci6n del portafolio de las inversiones del SPP, seconsidera significativo en el contexto de desarrollo del mercado de capitales peruano. En esesentido, las AFPs son el mayor inversionista institucional, habiendo influido en la creaci6n denuevos instrumentos financieros.
Con la emisi6n del Reglamento del Texto Unico Ordenado de la Ley del SPP se consolida eldiseflo de un regimen de inversiones de las AFPs caracterizado por su transparencia ytendencia al largo plazo, compatibilizando los conceptos del Reglamento con los incorporadosen la Ley del Mercado de Valores y en la Ley del Sistema Financiero y del Sistema de
38
Seguros y OrgAnica de la Superintendencia de Banca y Seguros. En esa linea se ha incluidolimites de inversi6n aplicables a grupos econ6micos, inversiones en activos titulizados, fondosde inversi6n y otras figuras incorporadas en la mas reciente legislaci6n. Asimismo, semodific6 toda la estructura de limites por emisor y por emisi6n.
Con ello se pretende investir al sistema, y en especial a las inversiones que efectuan lasAFPs,de un marco de absoluta transparencia, hecho que redundarA en beneficio del mercado y delpropio afiliado. Asimismo, mediante laredefinici6n del concepto de regulaci6n aplicable a larentabilidad minima que toda AFP debe tener, se aspira a un regimen de inversiones a largoplazo, dotAndose a las AFPs de los mecanismos necesarios para impulsar una competenciamAs abierta entre ellas, en beneficio de los afiliados del sistema.
Se modifica tambidn el tratamiento aplicable para el encaje que lasAFPs deben efectuar, engarantia de su obligaci6n de cubrir cualquier caida de los fondos de pensiones por debajo desu rentabilidad minima.
Asimismo con el fin de establecer un sistema de medici6n independiente del que se deriva deldesempefio del portafolio de las inversiones de las AFPs, se opt6 por la alternativa queestablece que las AFP deberian obtener para los fondos de pensiones un rendimiento real de0%. El margen de medici6n para el calculo de la rentabilidad minima se daria en un horizontede 60 meses, por lo que las AFPs pueden, durante todo ese periodo, adecuar sus inversiones yalcanzar la rentabilidad requerida. El objetivo es fijar una rentabilidad minima sin involucrarel propio portafolio de los Fondos de Pensiones, es decir, tener un punto de referencia que seacompletamente independiente del desempefio de las inversiones que realicen las AFPs.
Finalmente se ha desarrollado un sistema de custodia de los instrumentos representativos delas inversiones de las AFPs mAs profesional e integral, dirigido a resaltar la responsabilidad ymisi6n que corresponde a las AFPs en su calidad de administradoras de inversiones.
Actualmente la colocaci6n de recursos del fondo de pensiones en acciones comunes es laprincipal modalidad de inversi6n con el 26% del total, sigui6ndole en importancia losdep6sitos a plazo en moneda nacional (20%) y los bonos de empresas no financieras (19%).Otros instrumentos con menor participaci6n relativa son los bonos subordinados, las accionesde trabajo, los bonos de arrendamiento financiero y los dep6sitos a plazo en monedaextranjera.
Segin el destino de las inversiones se tiene la mayor concentraci6n hacia el sector bancario(40%), seguido por los servicios pfiblicos (17%), mineria (8%), la industria del cemento (7%),industrias de alimentos (6,7%) y otras empresas financieras (6%).
En relaci6n al objetivo de lograr mas transparencia en la informaci6n sobre riesgos, seobserva que hacia abril de 1998 existian ya 132 instrumentos clasificados correspondientes a69 emisores. De estos instrumentos el 30% corresponde a dep6sitos a plazo, 20% a bonoscorporativos, 15% a bonos de arrendamiento financiero y 11% a bonos subordinados, entreotros. De acuerdo a las categorias de riesgo acordadas por la Comisi6n Clasificadora deInversiones del SPP, se observa que el 32% de las inversiones se concentran instrumentos decategoria de riesgo I, el 27% en categoria de riesgo I y el 4% en categoria de riesgo III.
En cuanto a la reducci6n de la complejidad y costos asociados al regimen regulatorio actual,la SAFP ha venido propiciando la simplificaci6n administrativa del SPP. Al respecto secuenta con apoyo financiero de organismos internacionales con la finalidad no s6lo dereforzar la supervisi6n, sino tambi6n mejorar procesos, reducir costos en el sistema y, lo quees mAs importante, propiciar la incorporaci6n de nuevos trabajadores al SPP.
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En cuanto a los procesos de control y reducci6n de costos del sistema, la SAFP ha propuestolos siguientes aspectos que mejoraran los mecanismos de supervisi6n bajo condiciones delibre competencia y seguridad:
* reformulaci6n y rediseflo de procesos de supervisi6n* revisi6n y mejora de los procesos de recaudaci6n de los aportes de los trabajadores.* establecimiento de procedimientos eficientes, considerando esquemas mas intensivos de
seguimiento o supervisi6n remota.* revisi6n y mejora de las bases de los procedimientos de otorgamiento de prestaciones,
ademas de los mecanismos de control y supervisi6n de los mismos.
Sin embargo, es importante indicar que no basta con realizar ajustes meramenteadministrativos para alcanzar una reducci6n de los costos sino que es esencial propiciar unamayor competencia que redunde en una administracion mas eficiente, circunstancia queimplicara menores costos de manera sostenida.
En cuanto al nivel actual de morosidad del SPP, este no difiere sustancialmente a la tendenciay promedio mostrado por esquemas similares en otros paises (Chile, Argentina). Incluso hayotros esquemas en nuestro pais que muestran problemas similares; es decir, el caso de losagentes obligados a retener y pagar determinadas aportaciones que distraen dichos recursospara atender obligaciones operativas propias (IPSS, SNP, FONAVI). Sin embargo, se vienetrabajando en procedimientos que permitan un mejor control y cumplimiento de estasobligaciones. Entre los procedimientos que se pondrian en marcha estA el de darle caracter deDeclaraci6n Jurada a las planillas para facilitar el control de las respectivas aportaciones y desu pago por parte de los empleadores. Este procedimiento permitiria contar con undocumento legal que facilite la validaci6n de la informaci6n, al tiempo que seria ejecutable encaso de incumplimiento.
Un aspecto adicional de eficiencia administrativa lo constituye la mayor relevancia quetendria la Declaraci6n sin Pago, ya que aquel empleador que en su oportunidad no realiz6dicha Declaraci6n no podra efectuar la regularizaci6n administrativamente sino tendra quesometerse al proceso judicial respectivo.
> Desarrollo de un Marco para la Administraci6n de Activos y Pasivos de Pensiones
El 27 de enero de 1997 se promulg6 el Decreto de Urgencia 129-96-EF autorizando latransferencia al Fondo Consolidado de Reservas Previsionales por el equivalente a US$ 1000millones, para ser utilizados en la redenci6n de los bonos de reconocimiento.
En la misma fecha, mediante el Decreto Supremo 144-96-EF se reglamenta el FondoConsolidado de Reservas Previsionales, que fuera creado mediante el Decreto Ley 817,sefialando sus fines, estructura, recursos y organizaci6n asi como la aplicaci6n y el destino delfondo y facultades de su administraci6n. Este Fondo tiene caracter de intangible y sufinalidad es respaldar las obligaciones de los regimenesprevisionales a cargo de la Oficina deNormalizaci6n Previsional, mediante la inversi6n adecuada de los recursos que administra.Es administrado por un directorio de 5 miembros presidido por el Ministro de Economia yFinanzas e integrado por el Gerente General del Banco Central de Reserva del Peru, el Jefe dela Oficina de Normalizaci6n Previsional y otros dos miembros, actuando la ONP como suSecretanra Tecnica.
En relaci6n a la transparencia en las cuentas fiscales como producto de una adecuadacontabilizaci6n de los devengados provenientes de las obligaciones previsionales, la ONP
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viene realizando esfuerzos sustanciales en lo concemiente al levantamiento de informaci6n.Los estudios actuariales totales de todos los regimenes del SNP se estima estarin terminados aprincipios del siguiente aflo.
Finalmente, cabe subrayar la dimensi6n econ6mica que en poco mas de cuatro ailos ha alcanzado lareforma previsional que exhibe un volumen por fondos de pensiones superior a los mil millones ymedio de d6lares americanos y mas de un mill6n ochocientos mil afiliados a las distintasAFPs; logrosimportantes que permiten preveer un horizonte favorable para el sistema, a la vez que comprometidoen la construcci6n de una nueva cultura de previsi6n y ahorro intemo.
b) Reformas Complementarias en el Mercado de Capitales
Desde 1992 se inici6 la modemizaci6n del regimen regulatorio del mercado de capitales con laemisi6n del Decreto Legislativo 755, Ley del Mercado de Valores. Con este dispositivo se facilit6 lainiciaci6n y el incremento en el uso de nuevas instituciones e instrumentos financieros (tales comofondos mutuos, ADRs, bonos corporativos) y se mejor6 la supervisi6n y los sistemas deintermediaci6n e informaci6n.
En octubre de 1996 con los Decretos Leyes 861 y 862 se introdujo mejoras al mercado de capitales alestablecer un nuevo marco para la regulaci6n de fondos de inversi6n, proveer de una base s6lida parala titularizaci6n de activos financieros que de otra manera serian iliquidos, simplificar la regulaci6n defondos mutuos, mejorar la regulaci6n referida a papeles de corto plazo y bonos convertibles, aumentarlos requerimientos de capital para los intermediarios financieros, introducir el concepto deautorregulaci6n del mercado de valores, establecer la independencia del agente a cargo de lacompensaci6n y liquidaci6n de las transacciones financieras en el mercado de valores y mejorar latransparencia del mercado.
Posteriormente se han emitido los siguientes reglamentos: Reglamento de los Procesos deTitulizaci6nde Activos, Reglamento de Fondos de Inversi6n y sus Sociedades Administradoras, Reglamento deFondos Mutuos de Inversi6n en valores y sus Sociedades Administradoras, Reglamento del RegistroP ublico del Mercado de Valores, Reglamento de Instituciones de Compensaci6n y Liquidaci6n deValores, Modificaci6n del Reglamento de Oferta Puiblica Primaria de Valores, Reglarnento de Fondode Contingencia del Mercado de Valores, Reglamento de Oferta Puiblica de Adquisici6n y de Comprade Valores por Exclusi6n, Reglamento de Propiedad Indirecta, Vinculaci6n y Grupo Econ6mico,Reglam ento de Agentes de Intermediaci6n, Reglamento del Fondo de Garantia de la Bolsa de Valoresde Lima.
Finalmente se encuentran en elaboraci6n el Reglamento de Oferta Nblica Primaria, Reglamento deSanciones del Mercado de Valores, Modificaciones al Reglamento de Fondos Mutuos de Inversi6n enValores y sus Sociedades Administradoras, Modificaciones al Reglamento de Fondos de Inversi6n yReglamento de Empresas Clasificadoras de Riesgo.
Lecciones Aprendidas
Sobre el desempeilo del Banco
El Perti considera al Pr6stamo de Ajuste de Reforma de Pensiones como un pr6stamo exitoso puescontribuy6 con la consolidaci6n de la reforma del sector pensiones y con el cierre del Programa deReducci6n de la Deuda y su Servicio.
Gracias a una comunicaci6n fluida entre el Banco y el Gobierno, se pudieron focalizar los objetivosiniciales de un Pr6stamo de Ajuste Estructural n en objetivos centrales del proceso de consolidaci6n
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de reformas, como lo son la reforma del sistema de pensiones y del mercado de capitales,plasmandose en un pr6stamo de rapido desembolso.
Sobre el desempefio del Beneficiario
Las metas establecidas en el contrato resultaron bastante realistas lo que permiti6 al Gobierno sucumplimiento en el periodo previsto.
El Perfi inici6 el proceso de reforma del sector pensiones en 1992 y s6lo en seis afios el sistema hapermitido propiciar la modernizaci6n del sistema financiero, el mercado laboral y el sector seguros;tambien se han entregado pensiones con montos superiores a la alternativa estatal. En el aspectoempresarial, las administradoras han dedicado mayores y mejores esfuerzos a la atenci6n de losafiliados y se avizora ademas una situaci6n de equilibrio financiero de las AFPs. Es importanteresaltar la mayor tendencia a la inscripci6n de nuevos afiliados al SPP, lo que permitepreveer la totalfinanciaci6n del sistema.
En el SNP se ha logrado importantes avances, sobre todo en el Registro de los beneficiarios delregimen de cddula viva, asi como en la informaci6n de los afiliados al SNP y en los calculosactuariales correspondientes.
Sin embargo, el Gobierno es consciente de que debe seguir con atenci6n el desarrollo del SPP y SNPen el largo plazo y efectuar un anilisis serio y profundo de sus situaciones y posibilidades. En estesentido, se realizara un estudio que evalie estos sistemas previsionales de modo tal que se establezcanlas modificaciones necesarias para lograr un sistema equitativo y sostenible en el largo plazo.
