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Dmitriyev Fights Uphill Pension Battle

By Victoria Lavrentieva

Moscow News, April 29, 2003


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 to reforms.

"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 summer.

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 2004.

"Optimistically, 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 invest it.

But Dmitriyev dismissed these concerns, because at least in the short run pension money will be a relatively inconsequential portion of the market's total capitalization.

The "very active" corporate bond market, too, would likely help to absorb the funds, he said.

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