Globalization and Pension Reform in Latin America

Latin American Politics and Society, Winter 2007 by Brooks, Sarah M

Globalization and Attraction

President Menem came to office in July 1989, five months earlier than scheduled, due to a grave economic crisis gripping Argentina. As an outsider in the Peronist party, and as one who had campaigned on a populist and protectionist platform, Menem enjoyed very little support or confidence from market actors either in Argentina or internationally (Palermo and Collins 1998). On taking office, Menem radically reversed his campaign pledges by embracing an orthodox market-oriented stabilization and structural reform plan (Stokes 2001, 46-47).

After several false starts and failed stabilization efforts, in 1991 Menem shifted to the extremes of neoliberalism in order to make himself credible to the international community (Palermo and Collins 1998, 45). He did so first by placing authority for economic policy in the hands of an insulated economic team led by his newly appointed economic minister, Domingo Cavallo. Widely regarded as a close friend of the investment community in Argentina, Cavallo was "a man of the City," the Argentine stock market, and was associated witii the Argentine free market think tank Fundación Mediterranea (Torre 1997; Gerchunoff and Machinea 1995). Cavallo brought with him a group of free market economists, who designed and launched a series of deep, market-oriented structural reforms. The cornerstone of these measures was the inflationquelling Convertibility Plan, which pegged the new currency, the peso, directly to the U.S. dollar (Gerchunoff and Machinea 1995, 43).

With price stability came an immediate surge in consumption and inflows of capital, stimulating a swift economic recovery. Although the Argentine government did not embrace all market-oriented reforms across the social and economic policy spectrum (Murillo and Schrank 2005), Cavallo turned his attention to the nation's social security system. In 1991, he appointed Walter Schulthess, a macroeconomist, as secretary of social security and charged him with the goal of crafting a structural pension reform. Schulthess assembled a highly insulated team of technocrats that answered directly to Cavallo, rather than to the social security bureaucrats on whom they were formally dependent. The group enjoyed financial support from a World Bank program administered by the United Nations (Programa Nacional de Asistencia Técnica para la Administración de los Servicios Sociales, PRONATASS), which financed a series of consultations by international pension experts, including economists from Chile and Washington (Demarco 1998, 2004; Díaz 1998).

Although the World Bank had been active in policy lending in Argentina, and offered some early technical advice to reformers in the early 1990s, participants and close observers of the PRONATASS team argue that the bank did not define Argentina's pension reform objectives or contribute to the specific design of the country's pension reform proposal (Demarco 1998; Nelson 2004, 46; Rofman 1998; Schulthess 1998). Nor were domestic political interests influential in the early stages of the reform, as members of the reform team worked in what they describe as "laboratory conditions," tightly insulated from the pressure of traditional social security interests (Schulthess 1998). Argentine technocrats thus enjoyed considerable latitude to define the scope and objectives of their pension reform. Far from imposing privatization as a condition for the receipt of financial aid, the IFIs provided resources for Argentina's pension reform that allowed technocrats to seek advice from an array of international experts.