President Alberto Fujimori entered the Peruvian political scene as a charismatic underdog. Leveraging social unrest caused by a profound economic crisis left by the previous left-wing government, he won the 1990 election in a massive upset with a party lacking clear ideological views.
As soon as he took office, however, he implemented major economic reforms that had been proposed by right-wing parties during the campaign. In 1992, his government brought in the private pension scheme (PPS), where citizens contribute towards a fund managed by a private company, as an addition to the national pension system (NPS), where contributions instead go towards a government-run pool.
Peru was one of several Latin American countries that embraced the privatisation of social programs in the 1990s, a trend seemingly linked to a simultaneous wave of neoliberalism in the region. Yet, considering Fujimori’s initial lack of ideological commitments, was the implementation of the PPS in Peru in the early 1990s truly a response to neoliberal ideals? And considering the past three years have seen discussion around the elimination of the PPS, do these ideas still prevail?
The early 1990s: The Fujimori years
Shortly after taking office, Fujimori appointed Carlos Boloña as Economy Minister. Under Boloña, the ‘neoliberal model’ was consolidated in Peru. Boloña was a member of the Institute for Liberty and Democracy, a think tank led by Hernando de Soto, a supporter of neoliberalism close to the president, and a former consultant of the World Bank. The PPS was among the many reforms during his tenure.
Eight Pension Fund Administrators had begun operations in Peru by 1993. To encourage the transition of the affiliates from the NPS to the PPS, Fujimori established bonuses. One year later, and after the implementation of this incentive scheme, the PPS had recruited 1.1 million affiliates.
According to political scientist Kurt Weyland, while some of the members of the pension reform team were driven by neoliberal ideas, others collaborated for practical reasons. Thus, he mentions that ‘President Fujimori (…) was reluctant to introduce market principles into the social sectors and accepted pension privatisation only because his key economic advisers stressed its presumed macroeconomic benefits.’
Moreover, the economic climate was ripe for implementing the PPS, given that Fujimori’s government had inherited a country immersed in a deep economic crisis and suffering from hyperinflation. This meant that years of citizens’ contributions to the NPS had seen its value erode and the state lacked the resources to fulfil its social security obligations.
2020–2022: A new political crisis
Thirty years later, Peru is facing a crisis again. This time, the pandemic has wreaked havoc on the economy, and continuous clashes between the legislative and executive branches have harmed the country’s already weak institutional foundations.
In 2019, President Vizcarra, perceived as a centrist, used a highly questionable constitutional prerogative to dissolve the National Parliament. A year later, 130 legislators from nine different parties were elected to compose a transitory Parliament; out of them, just two had clear right or left-leaning views.
Still, regardless of their ideologies or partisanship, most legislators were driven by populism and went on to approve measures such as the partial withdrawal of funds from the PPS.In the wake of the pandemic, Parliament passed successive laws allowing ‘extraordinary’ withdrawals of funds from the five Pension Fund Administrators operating in the market. As reported by the SBS, the Peruvian financial regulatory authority, ‘70% of the affiliates—approximately 5.6 million—withdrew 65.9 billion soles from their pension funds.’ This led to ‘2.33 million members [being] left without pension savings.’ The SBS also commented that ‘these measures turn out to be contradictory to the social security principles’ and warned that they could trigger increased workers’ dependence on non-contributory pensions, generating a greater fiscal burden.
Within months, Parliament forced Vizcarra out of office and the political crisis worsened. New presidential and parliamentary elections were held in 2021 passing the executive branch into the hands of a political neophyte, Pedro Castillo, and his self-declared ‘Marxist’ party, Peru Libre. Following the previous trend, Parliament is once again fragmented, with 130 legislators belonging to ten political parties. Among them, three parties have right-wing tendencies and two are left-wing. Of the latter, Peru Libre used to have the largest representation (37 members in Parliament; now 20 due to several resignations), but most of its legislators lack clear ideological beliefs. Regarding the PPS, the current Parliament is following the steps of the previous one by putting the PPS’s long-term sustainability at risk. For instance, in May 2022, Parliament approved a sixth withdrawal of funds, which could cause an outflow of up to 37.750 million soles.
In line with the Parliament, President Castillo also announced that he will promote the creation of a team to reform the pension system. Such a proposal echoes the transitory Parliament’s act of creating a special commission to reform the pension system. In that capacity, the commission proposed the integration of NPS and PPS into a single universal system that will guarantee a minimum pension.
The role of ideological shifts
We can find ideological shifts powering the creation and weakening of the PPS respectively in both the early 1990s and the present. In the first period, Fujimori’s regime created the PPS after a deep economic crisis and under the advisory of internal and external neoliberal supporters. Its creation occurred amidst a proliferation of pension system privatisations and embracing of pro-market ideologies within the broader region. Conversely, the second period has been characterised by a complex economic and political context induced by a public health crisis and followed by a populist-leftist turnaround of the executive and legislative branches. With regards to social security, this has meant ongoing attempts to undermine the foundations of the PPS.
It’s clear that ideational changes in favour of or against neoliberalism among those with political power have been a significant trigger for changes in the pension system, making it more likely to bolster the PPS or weaken it. Nevertheless, economic and political circumstances, particularly in periods of crisis, also play a significant part in catalysing the occurrence of these shifts at any given time.
Inés Marrache Echaiz studies Public Policy and Administration at the London School of Economics.
This piece previously appeared in our 7th print issue, “Looking South.” You can read the full issue here: https://issuu.com/oxfordpoliticalreview/docs/opr_issue_7_final.