Politics and Pension Reform (Revisited) in Latin America and Central and Eastern Europe

Pension funds in privatized pension systems in Latin America and Central and Eastern Europe invested heavily in government bonds, and government borrowing increased given the necessity to borrow to fund the transition costs of moving to the private system. In many countries, fiscal pressures arising from the recent financial crisis put an end to this cycle – rather than finance the transition costs through debt, governments elected to drastically reduce transition costs by shrinking or ending the private pension system. This paper will explores the role that fiscal pressures played with respect to reversing (or maintaining) pension privatizations.  In Latin America pressure to reform the DC individual account systems came from internal political pressure to introduce greater equity and efficiency, including extending coverage, lowering costs, and improving gender equity (albeit with exceptions like Argentina and Bolivia). In Central and Eastern Europe, financial pressures exacerbated by the global financial crisis, the funding-gap crisis, and post-Maastricht EU fiscal constraints played a central role in reducing or eliminating DC. We discuss how financial pressure shaped politics of both retrenchment and consolidation of private pension systems.