The Worldwide Pension Crisis and Social Development

Comments to the Special Event Panel
"Critical Emerging Issues for Older Persons"
World Summit on Social Development
(Copenhagen, March 6, 1995)

By: James Paul

The official level of the Social Summit is based on a falsly optimistic assumption -- that governments and international institutions and the "private sector" are getting together...and in a spirit of goodwill, are pledging to make things better for everyone and reduce poverty worldwide.

But in practice, poverty is growing and actions by international financial institutions and government and the private sector are making it grow! Pensions provide us with a very dramatic case, in which tens of billions of dollars have been taken from the modest incomes of older people around the globe in the past ten years. And this process is continuing. Latin America saw the beginning, in the early years of the debt crisis, as the burden of the crisis was imposed on the weakest and most vulnerable groups. In Chile, in May of 1981, under the Pinochet dictatorship, the government responded to a crisis in the private banking sector by privatizing pensions. In 1994, Chile's one million pensioners were guaranteed a minimum of only $66 per month and in the public safety net only $36 per month, enough for a cup of coffee and a loaf of bread per day.

The World Bank has brought tremendous pressure to spread the Chilean system to other countries and to cut back on government pension spending. During the 1980's pension steadily declined in values in many countries falling in Venezuela to less than 1/6 their level at the beginning of the decade. Argentina saw the most dramatic cuts in early 1992 followed soon after by the terrible suicides of desperate and impoverished older people. Armenia Diaz will describe that crisis in more detail in a minute. Beginning in the mid-1980's several Latin America governments, under pressure from international lenders, simply stopped making payments to their pension systems... and they relaxed enforcement of pension contributions from private employers. Some governments allowed inflation to eat away at pensions. Cuts in public payrolls and privatization only made matters worse. As the `80's progressed, as the World Bank hammered away at its `reform' proposals, experts began to argue that pensions in the South were simply not viable. Colombia, Ecuador, Peru, Venezuela and Uruguay have all now started on a pension `reform' process, usually in the framework of Bank-imposed structural adjustment programs.

Pensions throughout Latin America have plunged. On average, in 1993, 14 million Latin American pensioners received jut $132 per month, according to the International Labor Organization, less than half the $327 needed for "minimum necessity." In Bolivia, the average pension was just $78 vs. $307 per month for necessities and the minimum pension was just $18 per month.

The restructuring of pensions in Latin America alone has been a measure appropriating resources by the richest from the poorest. If we assume 14 million pensions cut in half by $1,584 per year on average we arrive at $21 billion annually or $410 billions on a capitalized basis.

This frenzy of kleptomania has led to far larger seizures in Eastern Europe, because pensions taken there were much higher. The plague has now spread to Asia, where World Bank are working to "reform" the system in China, affecting over 100 milion Chinese elderly. Every $10 cut from Chinese pensions is the equivalent of $200 billion in capital.

Finally the chickens are coming home to roost in the rich countries. Thatcher slashed pensions in Britain through a semi-privatization process, while Maxwell the British publisher plundered hundreds of millions from the workers' pensions in his company. Now Sweden, Italy and U.S. pensions are at risk and the sums at stake are enormous: trillions of dollars. In a world of great prosperity, older people face poverty and despair. This is not "Social Development." It is time we said "enough"!

Global Action on Aging
PO Box 20022, New York, NY 10025
Phone: +1 (212) 557-3163 - Fax: +1 (212) 557-3164Email:


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