As Romania prepares to introduce radical pension reforms, labour minister Alexandru Athanasiu explains to Amelia Balazs how the new system was developed
Which model did you use?
Essentially it is about taking over the principles of privately administered pension funds from Latin America. The original model was the Chilean one, which in its turn suffered many detailed modifications. So, this is the principle around which we formulated the basic reform system of the second pillar in social assistance. We imagined the social assistance system in three pillars: first, a public one, followed by a second public but privately administered one which is based on a capitalisation system and obligation of contribution. The last one is also privately administered, but optional.
So it is a reform in three points, where the second pillar is considered the most important because it realises as well as obtains the second pension, a capital infusion on the Romanian economy, and assures an important capital market development and enriches the local investment environment. Of course, our real pattern, as is illustrated in the draft bill now in parliamentary debate, contains some quite visible differences if compared to the Chile model. In this sense, we kept the obligatory contribution for the public system, too. This is the main difference of the Chile pattern which was an option for the people already existent on the work market. It is closer to the Argentina pattern and practically identical to the Polish and Croatian systems. So, it could be a Romanian or European adapted model with certain regional elements, having at its origin a principle first promoted in Chile and then taken over with modifications by other Latin American countries.
What is the relation between the state and the new system?
First of all, one has to specify that this is a public pension system, meaning that the state guarantees the coming benefits. The guarantee manner is somehow different than the way this guarantees happens to work in the public system. The state guarantees this through rules according to which operating licences will be obtained by the pension companies to administer a single fund each. So, first, the state guarantees the legislative frame and has clearly defined criteria for accrediting these pension companies. Second, a public institutional structure is used which controls the way these pension companies operate with people’s contributions transformed into accounts paid to the system. So, it will be a supervising commission or public institution which will control as well as grant or take back operating licences.
Third, it will set up a national guarantee fund from contributions paid by each pension company from their profit. This will lead to founding of a national guarantee fund in case the pension companies do not obtain enough money as a result of their investments.
And in the fourth and most decisive place, if this national guarantee fund cannot obtain pensions corresponding to the paid contributions, the state (as the law stipulates) will grant the necessary sums from the state budget. So the last link is financially marked, but there are some legal and institutional steps certifying that the system is actually a public one, privately administered and also a system which allows the population savings to be used for the entire Romanian economic benefit by capitalisation.
Have you received any reactions?
There is a relatively consistent interest, both foreign and local. Many foreign companies are interested since abroad there are plenty of companies to administer private pension funds and they are some of the most important players on the world financial markets. Such a project is extremely profitable for developing the capital market and improving the Romanian economic environment. This project is also a way of attracting important international financial institutions.
How would this influence the new pension system and the local investment market?
Theoretically and practically in a substantial measure. From the annual contribution some $500m will be collected, not including additional profit. So we are talking only about the total contribution sum. The law stipulates maximum quotas for this money to get invested in various domains – T-bills and treasury bonds as well as capital shares in Romania and abroad. So it is obvious that this will contribute to two issues: capitalisation of the capital market, which is one of the Romanian economy’s structural vices, and a lack of liquidity. On the other hand, purchasing T-bills would help overcome the budgetary imbalance. This money will be invested to sustain budget stability. The result is the two direct and immediate effects we wanted.
What is the time frame for implementing the project?
We have two problems here. One is adopting legislation. Unfortunately, it is going very slowly in parliament. The draft bill was sent to the parliamentary debates in February. We are in late May and cannot see any significant progress in a positive direction. I am talking about debating and elaborating the lower chamber’s special commission report. Of course, I had hoped and I still do hope that this law will be adopted by the end of this year, since its implementation was scheduled for the beginning of 2000 and then postponed until 2001. So, we are still strongly affected by the annoying delay of the parliamentary procedures concerning this law. I hope the importance of this reform will be understood, since it is one of the most important or even the most important, even if it wasn’t made with much noise and fire crackers. This reform is important not only for the social aspects and its benefits as it provides two pensions for the persons eligible under the system, but also because the most rapid effect would be providing financial resources for economic development. The money didn’t come from foreign investments as we expected, but this is about using the population’s savings for consumption as well as for development.