Executive Intelligence Review
Subscribe to EIR


Chile's Private Pension Funds Panic,
As We Warned

Jan. 24, 2008 (EIRNS)—Panic has struck Chilean government officials and authorities who oversee that country's private pension system. They've been huddled in meetings over the past two days, fearing — correctly — that the meltdown of the global financial system could spell the doom of the private pension funds, known as AFPs, which have a large percentage of their assets tied up in speculative investments abroad.

Executive Intelligence Review warned back in December of 1995 — private pension funds totalled $25 billion at that time — that this would be the ultimate fate of the pension boondoggle that was imposed on Chileans by force in 1981 by the fascist Pinochet dictatorship, under the watchful eye of George P. Shultz. The whole house of cards could come crashing down very quickly, EIR stated in a December 11, 1995 press release, because at least two-thirds of those $25 billion were invested in highly speculative paper linked to the international derivatives bubble.

Twelve years later, that now-gigantic bubble is exploding, as are the investments which Chile's AFPs have made in it. The funds today total $104 billion, a whopping 80% of which can be invested outside the country. Since July of 2007, the AFPs have lost $10 billion. As the percentage the funds could invest abroad was increased over the years, the funds' controllers jumped into every conceivable "creative" investment vehicle possible. Now the workers who were forced to put their funds into the system will pay for it.

On Jan. 23, Guillermo Arthur, president of the Association of Pension Fund Administrators, urged workers to remain calm, and not to worry that the five major AFP funds were showing negative profitability. After all, he said, these investments are made to finance a pension 30 or 40 years from now. People shouldn't get upset if there's an "abrupt fall in the market one day, or in a week, a month, or even a year." The key is to just wait until this bad period blows over, and the situation is "stabilized".