The failure of pension reforms in Argentina and Chile: AFJPS and AFPS from a political economy perspective

Abstract

Chile and Argentina went through a crisis in their pension systems. In the first case, the government of Augusto Pinochet (1973-1990) responded by implementing the Pension Fund Administrators (AFP). In this capitalisation system, private institutions manage their members' funds to create a long-term return for them in the form of personal accounts. The validity of this system is disputed because of its significant inefficiency. Under the government of Carlos Menem (1989-1999), Argentina designed the Retirement and Pension Fund Administrators (AFJP), a mixed system that charged a commission, deducted from members' mandatory pension contributions, and managed the investment of accumulated capital. In 2008, this system was abandoned in favour of a public model.

This paper will explore the failure of both systems, which were based on economic assumptions in their design that led to their crisis. Its originality lies in the actors considered in the analysis - governments, entrepreneurs and NGOs - and the causal mechanisms that explain the failures of the policies implemented. The methodology employed was qualitative, based on interest- and idea-oriented institutionalism. The exhaustion of both systems occurred due to their flawed theoretical assumptions.