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Preparing the ground for Seguro Social reforms
Business & Economy Briefs

Torrijos moves slowly toward
Seguro Social confrontation

by Eric Jackson

The radical SUNTRACS construction workers’ union plasters the capital with posters depicting a masked thief or a high-hatted capitalist making off with the Social Security Fund (CSS, by its Spanish initials). The Presidencia issues a statement lamenting a decision by part of the labor movement to skip one last round of talks about changes to Seguro.

And all without any specific proposal yet before the Panamanian people.

In its standard presentation, the most ambitious aim of the Torrijos administration is the expansion and modernization of the Panama Canal. The arguments most likely to sink such a project would be economic and they include fundamental doubts as to whether economic projections looking ahead over decades make any sense as the basis for the country taking on the implied long-term debt burden. However, the debt payments might not look quite so impossible if Panama has a better credit rating when it borrows, and the administration is betting that by taking care of the actuarial problem with the retirement fund now it will over the years save the country a lot of money in interest payments for the canal project.

Nor is Seguro the only thing Torrijos is doing to get the country’s credit rating back up --- according to Credit Suisse – First Boston, tax receipts for January and February were some 9 percent over projections. That’s without the new tax increase yet kicking in. Canal tolls and thus revenues are about to go up again, sharply this time.

International lenders look at government budget deficits or surpluses when determining risks (in effect setting interest rates), and it does seem that Torrijos is paying close attention to those details.

The president is acting with the near certainty that the Seguro Social changes will be painful and unpopular, such that, even though he will come out of the controversy with the votes to prevail in the National Assembly intact, his ability to mobilize public support much beyond his partisan base may be seriously diminished.

In the run-up to the unveiling of the administration’s proposal, critics have complained that the government’s publicity campaign about Seguro’s troubles is based upon projections derived from the relatively short recent five-year period when Panama’s economy was in a steep decline, thus improperly projecting an anomalous bad time of the past as a long-term trend of the future. An enormous amount of money is being spent on advertising promoting the government’s view of it, however, and that’s tending to drown out the critics’ objections.

Another advantage that Torrijos has over his critics is that hardly anyone will deny that there is a problem with the CSS retirement fund. The failure of United Nations Development Program-sponsored dialogues among various social sectors during the previous administration and the wide margin by which Torrijos won the presidency last year would indicate some sort of mandate to cut through this particular Gordian Knot.

There are and have been various proposals to reform the fund, and many expect that the Torrijos administration will incorporate parts of the various proposals into a relatively moderate package that will slightly increase worker and employer contributions and substantially reduce the benefits that will be paid out to future retirees. That’s sure to inflame the inflammable and to annoy a lot of other people with calmer dispositions. The perception of fairness or lack thereof when the president finally unveils his plan will set the political price that will have to be paid.

Torrijos needs to fix Seguro Social to get the financing for a canal expansion, but if he comes out of the brawl over the CSS with negative popularity ratings, that could make it harder for him to win the necessary referendum to start such a project.

So far polls show that nearly two-thirds of Panamanians support the general idea of modernizing the canal. No specific proposal has been presented and no referendum scheduled, but there is a persistent rumor of a canal referendum to be held in the latter months of this year.

Also in this section:
Preparing the ground for Seguro Social reforms
Business & Economy Briefs