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Proposed Social Security changes are severe

by Eric Jackson

The Torrijos administration has announced its Seguro Social reforms, which come in the form of an entirely new organic law for the Social Security Fund. When he addressed the nation on May 18, President Torrijos talked about general principles and didn’t get much into the details, and in the next day’s newspapers the government inserted a 40-page tabloid containing the law’s text. It will take some days yet for the minutiae of the entire law to be examined.

However, the things about which the most people were most concerned soon came to light, even if the government didn’t care to emphasize them. These include:

• A decision not to privatize, partially or fully, the Social Security Fund. Although it may be argued that cutbacks will lead some people to invest in private pension plans because they won’t get much from the public system, the consortia of banking and insurance interests that wanted to manage or outright own the multi-billion-dollar fund are sure to be disappointed.

• A decision not to invest the remaining real estate assets of the former Canal Zone into the Social Security Fund, as the labor movement had demanded. The Torrijos administration will put $60 million into health care coverage and $20.4 million into early retirement plans for those who work in a few especially arduous lines of work, but the hundreds of millions in real estate could have but won’t form the cushion for a less drastic solution to the general retirement fund.

• A 67 percent increase in the number of months that one must pay into the Social Security Fund in order to become eligible for retirement benefits, from 15 years to 25 years. Those who had taken time out of the job market to raise kids, lived abroad, worked for enterprises that didn’t pay into Seguro, spent years in prison, tilled the soil or otherwise spent decades of their adult lives not paying into the fund will in many cases never qualify for retirement.

• A five-year increase in the retirement age for women, from 57 to 62. The combination of the increased number of months paying into the system, years out of the paid work force raising children, systematic if now illegal gender discrimination and the openly practiced age discrimination policy of many businesses who only want women “con buena presentación” (cute young things, they mean) will surely throw a lot of old ladies into penury.

• A three-year increase in the retirement age for men, from 62 to 65.

• A requirement for self-employed people to pay into the fund, to the tune of 13 percent of their gross income. Those aging individuals who have been self-employed and not contributing to the fund for many years may thus have to pay for benefits they will never receive. Small-time merchants with narrow profit margins will be especially hard hit. It may be, however, that the worst of it won’t be the payments to Seguro Social, but the costs of hiring CPAs to handle records for micro-enterprises.

• Criminal penalties for evasion and false reporting, and increased late charges for payments made in an untimely manner.

• A gradual but modest increase in coming years in the rate of monthly contributions to the fund.

The Torrijos administration is claiming that the reforms will make the retirement fund solvent for at least 40 years, but some business leaders claim that this is an exaggeration. An analysis by the National Private Enterprise Council (CoNEP) maintains that it’s only a 15-year fix. Enrique de Obarrio, the president of the Panamanian Business Executives Association (APEDE), told La Prensa that the reforms fall heaviest on the middle class but don’t deliver the benefits that are claimed.

The night before the reforms were announced, in a forum at the Colegio de Abogados building, labor lawyer Eduardo Ríos said that “there’s not such a financial crisis in the Social Security Fund” anyway. He noted that the figures used by the government and those sectors that were pushing for privatization are invariably short-term, mostly encompassing the deep recession that lasted from mid-1998 to mid-2002. He also accused the Torrijos administration of withholding 2004 and 2005 national economic statistics in order to make the situation look worse than it really is. Moreover, Ríos claimed, the government’s numbers include payments into the fund by workers and employers and payments out of the fund to retirees, but don’t include the income that’s earned on the investments that the fund makes. The Social Security Fund, he said, has some $2 billion in the bank and despite the claimed crisis has been increasing every year. Thus, he said, talk of the fund going bankrupt is simply wrong.

At the same forum, Dr. Fernando Castañeda said he and a number of other physicians who belong to the AMOACSS union of doctors and dentists who work for Seguro Social started to look deeper into the statistics when the arguments for drastic changes seemed too simplistic to them. He said that they uncovered the same faulty reasoning that Ríos alleged, and also noted that the alleged runaway spending of the last few years was not so much a matter of bloated payrolls but the fact that in recent years the fund was buying and building hospitals, making capital investments that do not permanently increased the fund’s spending.

However, Castañeda said that he and his colleagues found that most of the media were not interested in publishing less alarmist views about the state of the fund. He didn’t deny that there are problems at Seguro Social, but he said that these were mostly matters of bad management and the practice of successive governments to use the fund as a petty cash box by making it buy low-interest government bonds.

But President Torrijos maintained that the bitter medicine is necessary. “We won’t back down,” he vowed. “We are ready to pay the political cost of reform.”


Also in this section:
The Seguro Social reforms

Interview with Telesur's Aharonian
Business & Economy briefs


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