GLOBAL – A row has erupted over errors in a review of the Chilean pension model published by the World Bank, with the authors facing accusations of “bias”.
At issue is the level of commissions charged by Chilean fund management companies in the private mandatory pension system. The row is significant because the so-called Chilean model has been held up as an example of how to undertake pension reform.
The dispute centres on “Keeping the Promise of Social Security in Latin America” by Juan Yermo of the OECD and the World Bank’s Indermit Gill and Truman Packard.
The book erroneously reported that 80% of contributions were consumed in commissions. The authors have acknowledged their mistake but Salvador Valdes-Prieto, Professor of Economics at the Catholic University of Chile, said it was an “absurd” and “enormous” error to make.
He said: “Nobody in Chile would believe that this ratio was as high as 80%. The authors of ‘Keeping the Promise’ should have rejected such numbers out of hand.”
He added that differences in results with previous work were “dismissed” and that a Chilean official who advised the authors of the mistake was “ignored”.
And he claims that the authors’ response to the error was “biased” and inadequate - and that his own research was misrepresented.
Valdes-Prieto states that the total commission collected by Chilean pension fund managers “is currently in the range of 0.65% of assets under management (and those assets are growing much faster than commission revenue)”.
In reply, Gill said he was surprised at the “ferociousness” of Valdes-Prieto’s broadside, but said the error was innocent. “It is important that we make the correction, and we intend to do so,” he said.
But he added: “The quantities will change for sure, but the qualitative results will remain the same.”
The book was published in December last year. At the time, Guillermo Perry, the World Bank’s chief economist for Latin America said that Latin America’s “failure to extend coverage to a broader segment of society makes it premature to call the reforms a success”.