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Fights Uphill Pension Battle
The slimmer the
chances have become that pension reforms will be enacted this year, the
more First Deputy Economic Development and Trade Minister Mikhail
Dmitriyev has prodded the government to accelerate them -- despite a
warning last month from Prime Minister Mikhail Kasyanov that he should
refrain from speaking out against the government line.
In a conference call
Monday with analysts, investors and reporters, Dmitriyev admitted that he
has had little success in maintaining the government's earlier commitment
"Of 11 critically
important pieces of legislation, which ... were to get approval in the
first half of 2003, the government so far has only adopted one, appointing
the Finance Ministry as a public regulator," Dmitriyev said.
It now seems unlikely,
he said, that individuals would be able to choose private asset managers
by the end of this year.
In order for that to
happen, legislation creating a centralized depositary for pension payments
must be implemented, and until then, no public tender can take place among
private investment companies for the right to manage people's pension
accounts. The tender's results had been expected by the end of this
The original timeline
envisioned that a framework would be in place by the end of this year for
individuals to select which fund managers would handle the money set aside
for their retirement. But that was predicated on government approval of
key legislation by the end of May. At this point, Dmitriyev said, such a
target is "almost unreal."
Dmitriyev said the
delays are largely due to logistical problems. More than that, though, he
said sensitive issues, like public and market interests, underlie the
foot-dragging. "Sometimes we just have to sacrifice time for the
safety of the whole system," he said.
Natalya Orlova, an
economist with Alfa Bank, agreed that many of the sticking points have
nothing to do with the legislative lag. The postal system, for example,
remains extremely inefficient, she said, and its inability to deliver the
necessary documents informing citizens of their pension fund options by
Oct. 1 would be a difficult problem to solve.
"As a result,
most people de facto won't be able to make their investment choices this
year, which means that the money will stay with the State Pension
Fund," Orlova said.
Even under the most
optimistic scenario, she said private individuals would not have the
opportunity to decide on the future of their pension money until mid-2004.
Dmitriyev said the
State Pension Fund will have accumulated about 85 billion rubles ($2.7
billion) by the end of this year that would be ready to invest as early as
we expect that some part of this money will be passed to private managers,
but at this stage it is hard to estimate exactly how much," he said.
When that money
eventually flows out of the state lockbox into the market, some worry that
it will flood the equity market with more money than there are places to
dismissed these concerns, because at least in the short run pension money
will be a relatively inconsequential portion of the market's total
active" corporate bond market, too, would likely help to absorb the
funds, he said.