President Torrijos has chosen economist René Luciani as the new director of the Social Security Fund, and in making that choice has set the nation on a course for a stormy debate about the trouble pension fund’s future. In his inaugural address Torrijos chided Mireya Moscoso for leaving a constant hemorrhage at Seguro for his administration to solve. Upon his appointment, Luciani said that he had no “magic formula” to resolve the problem but that he would listen to different proposals and come up with a definitive solution next year.
As provided by law, Torrijos chose Luciani from a set of three candidates who were nominated by the members of the Social Security Fund (CSS, or Seguro Social) board of directors. In the nominating process Luciani did not have the support of organized labor’s representatives. The main reason for the unions’ antipathy is that they view him as one of the principal architects of the Pérez Balladares administration’s privatization policies, which they considered inimical to the interests of working people.
Last year there was a massive protest march and a series of strikes and riots after Mireya Moscoso fired Juan Jované as the CSS director. Jované, a leftist economics professor at the University of Panama, had the strong support of organized labor but clashed with various special interests linked to the Moscoso administration and with the business representatives on the CSS board in general. According to Moscoso and people who supported the firing, the problem was that Jované was an incompetent administrator and a rigid ideologue. According to Jované’s backers, whose ranks included most labor unions, the issue was whether the management of Seguro’s pension fund would be privatized. A few months before the firing, the board’s business representatives suggested a “three pillars” pension system, which included private management of the pensions of the highest-paid workers, a public system with all the hallmarks of a sinking fund for the lowest-paid workers, and a choice for workers in the middle as to which system they would prefer. Two large consortia of the country’s principal banking and insurance companies, then and now, have expressed an interest in managing Seguro’s pension fund.
Martín Torrijos was elected president after promising voters that he would not privatize the CSS. However, “privatization” is one of those concepts whose meaning is disputed and it is quite possible to incorporate certain private features into a basically public system and deny that any privatization is involved.
The CSS runs four basic programs: the retirement pension system, disability benefits, support for the surviving dependents of insured workers who die and the main part of this country’s public health care system. (For people who do not qualify for Seguro Social health care, there are the Health Ministry’s facilities, the flagship of which is Santo Tomas Hospital.) When the Panamanian economy went into a tailspin beginning in late 1998 and bottoming out in mid-2002, more than 15,000 businesses stopped paying into the social security system and deficits ballooned, accumulating to some $3 billion to date. However, on a long-term basis it’s really just the retirement pension fund that’s in serious trouble.
To put the retirement fund on a sound footing, Luciani is going to have to do something painful and unpopular. Benefits must be reduced, contributions toward the retirement fund must be increased, or else some combination of these must be enacted. Although the labor movement advocates the transfer of certain state-owned assets into the Social Security Fund, that would only reduce the present deficit and not stop the regular losses. There will be no painless way to plug the drain on the pension fund.
A reduction in benefits could be done in several ways. The retirement age could be raised. The amount of pension checks could be lowered. Benefits could be adjusted by some sort of means test, by which retirees with other sources of income might have their pension checks reduced. (Means testing, however, opens opportunities for fraud and thus implies greater administrative costs to control such abuses.)
An increase in contributions might be imposed on employers, on workers or on both. However, one of the lessons that ought to have been learned in the deep recession that characterized most of the Moscoso administration is that if Seguro payments become too much for small businesses to pay, they will either close their doors or more likely retreat into the informal economy that pays no taxes or social security withholding.
Sacrifices could be distributed equally across the board (e.g., everyone takes a $20 reduction in pension checks, or both men and women have their retirement ages increased by three years, or both workers and employers pay five percent more), or the sacrifices could be distributed according to various concepts of justice or of relative political and economic power.
Thus Luciani, a veteran PRD apparatchik who has held a variety of economic posts under both the Pérez Balladares administration and the dictatorship, can be expected to take unpopular measures that will bring protesters out onto the streets. But which measures these might be, and the public perception of how the sacrifices are distributed, will be the details that make or break his reputation.
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Business & Economy Briefs
Blades at AMCHAM
Torrijos planning austerity measures
The problems with the Albrook-Balboa overpass
Luciani tapped to head Seguro Social
