Pension reform in Colombia: the capital market will suffer collateral damage

The Petro Government has already shown the bases that the pension reform will have that it hopes to process next year and did not moderate a comma what was its proposal during the campaign.

That is why there are many fears about what could happen to the Colombian capital market if it passes through Congress with the bases that the Executive intends.

For leaders of the left, of the right, for the multilaterals and for the rating agencies, it is clear that in Colombia it is necessary to process a pension reform project, however, there are radical differences in what type of reform is needed to make the system sustainable.

The pillar model is the one that the Government wants to implement. Basically all workers who earn up to 4 minimum wages would be required to contribute to the public pension scheme and those with higher incomes will be able to contribute to private funds on the value that exceeds those first 4 wages.

Jaime Humberto López, president of Asobolsa, a union that brings together stockbrokers in Colombia, warns of the great risks that exist in the government’s proposal, risks that go far beyond the use and disposition of pension savings.

“We have more than $300 billion saved, and a very important percentage is in TES, let us not forget that this is Government debt, and that means that the Government debt is now managed by the Government. We lose control, and the rate, then the market does not speak, because the State speaks more than the market,” says López.

The president of one of the stock brokers in Colombia who prefers not to be mentioned assures that the capital market suffers collateral damage due to President Petro’s obstinacy in keeping his campaign proposal exactly the same now in government.

He also says that it is the pension funds that buy the government’s debt and that the reform would take away the resources with which they buy that debt. He wonders, who does the government think is going to finance it now if there is no capital market to which it can go?

López, from Asobolsa, assures that the AFPs are at risk of disappearing. “”But it is not only that, we must remember that the dynamics of the market is based on a significant percentage of the shares of the BVC and many other operations carried out by pension funds. The shares in Colombia are moved by the funds, and they are moved with the affiliates’ money in the most orthodox and conservative way. The returns of these years may not be dazzling but the accumulated one is extraordinary. We cannot take advantage of a global impasse to destroy what we have achieved. With Petro’s proposal, the AFPs are, yes or yes, going to disappear, and that is very serious”.

But one of the most worrying issues continues to be the large pool of saved resources that would come under the control of the State. López assures that taking advantage of the crisis of the last two years to discard what has been built is a terrible decision.

“A lot of damage is being done to the country. Passing the savings that have been generated to the public side is very serious. The profitability of the last 2 years has been bad because of everything that has happened, but not in Colombia but in the world, but if the accumulated profitability is reviewed, it is very good. It seems very serious to me that people take away their money and that it go to the State appetizingly to a giant fund that could end up who knows where, even under the control of the president himself. It falls into a lagoon where we don’t know what could happen,” concludes López.

With information from Bloomberg