annual GDP—has yet to decline. Experts point out that
since private accounts aren’t meeting expectations,
substantial numbers of workers will continue to rely
on state assistance. So, public outlays are unlikely to
significantly drop. In addition, coverage levels remain
low. Despite promises, private accounts did not attract
new participants. Those with a choice—including
almost all independent workers—opted out of the private retirement accounts. Less than 40 percent of the
Latin American labor force on average is included in
the pension system.
The dimming of Latin Americans’ infatuation with
private pension management reflects, in part, the
region’s widespread disillusionment with neoliberal
market reforms. The principal lesson, as neoliberal
policies in general have demonstrated, is that markets
alone cannot deliver public goods. While individual
accounts remain a powerful financial tool, privatizing
social security doesn’t cure many of the deep-seated
problems of Latin American economies. And it doesn’t
provide security in old age.
These limits are behind the new round of reforms.
Many of the changes being contemplated—including
in Chile—leave the basic outlines of the system intact.
The crucial difference, however, is in the revived role
for the state.
removing control over pension benefits from
the public realm, reformers believed, would
end “pension politics” over payments as well
as the system in general. But nearly three
decades of private pension management in Chile,
Shannon O’Neil is a fellow for Latin America Studies
at the Council on Foreign Relations and an adjunct
assistant professor of Political Science and a visiting
scholar at the Institute of Latin American Studies at
92 Americas Quarterly FALL 2007
and similar experiences over the past decade in other
countries, suggest this was an impossible dream on
The architects of privatization in Chile and elsewhere believed that the new system could meet the
financial needs of the majority. Latest assessments
from the Chilean finance ministry now indicate that at
least half the population will not save enough in their
individual accounts to meet the minimum pension
level (OECD projections put this figure even higher at
60 percent). The bottom line: private pension accounts
are not growing fast enough on average to provide a
basic living for retirees. No government, whatever
its political complexion, will allow half of the elderly
population to sink into poverty. So politics—and the
government—is reclaiming this territory. These new
public pension costs in Chile could reach as high as 5
percent of annual GDP, according to the OECD and the
International Monetary Fund (IMF).
Chile isn’t an anomaly. Preliminary estimates by
financial and multilateral institutions suggest that other
Latin American countries will face a similar dilemma
as their systems mature. This will bring congresses
back into the picture as they again create a basic public
benefit for the majority of retirees.
If the fiscal promises of pension privatization were
overblown, so too were the expectations that governments could eliminate political battles by transferring the burden of social security to the private sector.
Instead, the reforms merely shifted political power
from government ministries to new regulatory agencies. The decisions of those agencies would shape the
development of the fund industry. The accumulation
of savings and future retirement benefits inevitably became tense arenas for interest group lobbying.
Given their inside track, pension fund managers were
exceptionally able to influence the process, particularly
during the start-up period. “There really was no difference between the pension funds and their regulators,”
one Chilean regulatory official admitted. The head of
the country’s pension fund lobbying association, the
Asociación de Administradores de Fondo de Pensiones
(AFP), echoed this sentiment—with unmistakable pride.
He pointed out that one of the legislative reforms that