Latin Finance - July/August 2010 - 24

peru pension funds

the highest perspectives for growth. We existing infrastructure, was won in June expect to see a substantial jump in per 2009 by a consortium led by Ecuador’s Hidalgo y Hidalgo construction company. capita income,” says Nicolás Eyzaguirre, Paita port was transferred to a consortium the IMF’s director for western hemisphere. Peru is bolstered by a series of freerun by Portugal’s Tertir-Terminais in trade agreements implemented by Peru October. since 2009, investment grade rankings The sticking point is the slow and local measures to formalize Peru’s pace it actually takes for government concessions to get off the ground. A study highly informal workplace contributing to a solidification of growth. commissioned by the APPF traced the The finance ministry remains cautious, steps in a concession process, concluding forecasting 2010 GDP growth at 5.5%, that the average time was 75 months. but it has been slowly revising its figures “The principal problem is that each upward. One of the most encouraging process is sequential, so several steps signs for analysts is the recuperation of cannot be carried out at the same the country’s industrial sector, which had time. We have proposed changes to the government to improve the process,” says Flecha. Peru AFP Performance (% return, April 09-April 10) Infrastructure Rebounding post-crisis investment by the AFPs has slowly increased, Fund Assets ($bn) % Foreign Type I* Type II but totaled less than Horizonte $5.98 22.60 12.20 23.84 8% at the end of 2009. Integra $7.91 22.50 7.06 22.71 Investment in real estate at the end of last year Prima $7.82 22.10 9.92 26.86 was only 0.9% of the Profuturo $3.77 19.70 10.74 24.59 overall total, but that Total/ $25.50 22.00 9.71 24.52 is likely to change as average the construction boom *Least aggressive; **most aggressive continues and changes Source: SBS in the market permit long-term mortgages and other instruments, such as mortgage been seriously hampered by world crisis. securitization, that did not exist a few The national society of industries years back. There are also four real (SNI) reported in early June that estate investment funds – AC Capitales, investment this year would be $4.6 billion, Compass, Larraín Vial and Enfoca – that up from $3.2 billion last year. In addition, could begin absorbing pension fund SNI reported that industry was operating money. in March at 79% of installed capacity, up The construction sector, which led from 67% a year earlier, and imports of Peru’s stellar growth throughout much of industrial components were up 53% in this decade, is also staging a rebound. It March compared to March 2009. expanded 24.1% year-on-year in March, “As the country grows and the according to national statistics and economy becomes more formal as a result information institute INEI. Growth in the of investment, free-trade agreements and construction sector in the first quarter public policies there will be more workers of 2010 was 16.8%, well above GDP with benefits, health care and pensions, expansion of 6.0%. and the AFPs will continue to expand,” says Paz Soldán, who estimates that the Growth Boost total funds in the four AFPs would top $50 Flecha expects continued volatility in billion by 2014. world markets and possibly another dip in 2012-2013, but he believes AFPs are well- Informality Costs prepared for adverse conditions. He also Flecha says the key to AFPs, and Peru’s feels that Peru’s economy, which has been future growth, is incorporating workers expanding for a decade, will remain firm. into the formal sector. There are just 4.5 “Peru is one of the countries with million Peruvians, out of a working age

population of 14.5 million, registered with AFPs. Of the 4.5 million, the industry association states that 2.2 million were actively contributing through the first quarter of this year. The public system has around 775,000 people enrolled, and 350,000 contributing. Of the roughly 9.2 million Peruvians without a pension plan, the labor ministry calculates that 7.0 million are in the informal sector and the rest are independent workers who file taxes but are not covered by pension plans. Legislation passed in 2007 allows workers the option to move from the AFPs back to the public system, known as the ONP. There were approximately 775,000 people covered at the end of 2009 by the ONP, which acts similarly Type III** to an AFP, with only workers 41.95 enrolled having to pay in. 41.94 However, the finance ministry says the ONP is insolvent, 45.08 since it cannot cover pensions 39.70 using contributions from 42.55 workers. While only around 40,000 people have accepted the plan and transferred to the state plan, workers entering the job market have opted for the public system at roughly the same pace as those picking an AFP. The government has instituted a series of plans to begin formalizing labor, including legislation to encourage micro and small enterprise (MSEs) to move in this direction. The production ministry estimates that 100,000 MSEs have formalized in the past two years. Under the law, the government matches each dollar an MSE deposits in a pension fund for its workers. “Peru has one of the lowest levels of pension coverage in South America. This is not because the system is inefficient, but because of the high level of informality,” says Paz Soldán. Flecha says AFPs are actually helping to formalize the economy. He estimates that if current trends continue, informality could drop to around 20% of the workforce in the next two decades. Informality was around 60% of the workforce in June. LF

24 LatinFinance

July/August 2010
Latin Finance - July/August 2010

Table of Contents for the Digital Edition of Latin Finance - July/August 2010
