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Colombian President Alvaro Uribe plans to reduce spending on retirement benefits in a bid to rescue a pension system that may run out of cash next month. Uribe will ask congress as early as Tuesday for a constitutional amendment to cap monthly payments at 9 million pesos ($3,300) -- down from a current maximum of about 18 million pesos -- and eliminate one of two bonus monthly payments granted annually, according to Finance Minister Alberto Carrasquilla. The country's state pension agency, the Social Security Institute, or ISS, is eating through its reserves at a rate of 200 billion pesos a month, forcing the government to tap the budget as soon as next month to keep it afloat. That will hurt the government's efforts to keep its budget deficit to 2.8 percent of gross domestic product this year. ``The number of pensioners grew, they didn't make the savings that were historically necessary for this type of system, and the obligation passes to the nation,'' former ISS director Hector Cadena said in an interview at his Bogota hillside home. The government, which will have to pay 3.7 trillion pesos of the 5.9 trillion peso cost of the ISS program next year, is also considering future bills to phase out the state-subsidized pension system in favor of a fully private pension system similar to Chile's, Carrasquilla said in an interview. `Careful' ``We have to be very careful in order to allow this pay-as- you-go system to live out its life, if that is the decision -- carefully, prudently,'' said Carrasquilla, 45. The amendment the government is proposing will call for a phase-in period in the reduction of the highest pensions. The highest monthly pension of 18 million pesos -- paid out mostly to former presidents and senators -- is 50 times the lowest monthly pension of 358,000 pesos. Uribe, 52, will also propose a 4 percent sales tax on a range of items from potatoes to rents to help fund the state pension system until savings from the amendment take effect. Uribe's proposed constitutional amendment alone won't solve the country's fiscal problems, said Mauro Leos, an analyst at Moody's Investors Service. ``It's important to keep in mind that even if some reforms are improved by congress, those may have a medium-term impact but not a significant one in terms of the overall budget,'' Leos said in a June 25 interview in Cartagena, Colombia. ``We should expect at least two or three different rounds, step by step.'' Retirement Age Uribe will also present a separate bill to speed up a phased- in increase in the retirement age due to take effect in 2014, said Social Protection Minister Diego Palacio. The bill seeks to raise the retirement age to 62 from 60 for men by 2008 instead of 2014, Palacio said. Women would retire at 57 beginning in 2008, up from 55. Labor unions plan to oppose the bills. ``With the age increase, people won't be getting their pensions to enjoy their retirement, but to pay for their burials,'' said Luz Marina Hache, a member of the board at the country's legal sector union. The government would need about 56 trillion pesos ($20 billion) -- about 23 percent of the country's $90 billion gross domestic product -- to ensure the ISS pensions are covered for their duration, said Cadena, 48. Cadena stepped down as director of the ISS two weeks ago, saying he wanted to spend more time with his children living abroad. Pension System Vice President Elena Meza is in charge of the ISS until Uribe appoints a new president. Porvenir, BBVA Horizonte The ISS was created by the state in 1947 to provide health care benefits and in the mid-1960s began providing pensions to private company employees, while state employees such as civil servants and teachers contributed to separate pension funds. Both received state-subsidized pensions. A 1993 law created private funds that have been replacing the state-subsidized system. The ISS has 1.8 million people contributing to it, while the six private funds such as Porvenir SA and BBVA Horizonte SA have 2.5 million contributors, Cadena said. The private funds manage 22 trillion pesos worth of pension savings. Only one in four Colombians of retirement age get any pension, Cadena said. Carrasquilla has said the government should make it a priority to make pensions available to all the elderly. Uribe's bid for approval to run for reelection in 2006, which requires a constitutional amendment, has been approved in four of eight Congressional debates needed, giving more impetus to the government's economic proposals, including the pension bills, said Vitali Meschoulam, an economist at HSBC Securities in New York. ``The re-election drive is redrawing the line in congress and breathing fresh air into the debate,'' Meschoulam said in a telephone interview from New York.
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