MEXICO CITY — Latin America is a recognized leader in social security reform. But lately the golden years there have been anything but.
Federal employees across Mexico have staged massive demonstrations to challenge government efforts to ax their pension benefits. Leaders in Brazil and Argentina are under fire from workers angered by cutbacks in their retirement funds.
These frictions are cautionary tales for the U.S. as it struggles to fix its stressed Social Security system. One clear lesson: Reforms are inevitable, but they will undoubtedly cause unrest.
Beginning with Chile in 1981, Latin governments that had promised retirees more than their struggling economies could deliver were forced to make radical changes that the U.S. and many other developed nations so far have ducked.
While U.S. policymakers debate the merits of partially privatizing Social Security, as well as cutting benefits and raising the eligibility age, nearly a dozen Latin nations have already retooled their rickety publicly financed systems with individual savings plans that require workers to finance at least a portion of their retirements.
Mexico in 1997 forced all private-sector employees to tuck part of their salaries into personal 401(k)-style accounts. But an effort to extend those reforms to government workers recently hit a roadblock, as civil servants took to the streets to protect their publicly financed pensions.
Tens of thousands of unionized federal medical workers jammed city centers in Mexico City, Guadalajara, Monterrey and Cuernavaca this month to protest government proposals to raise their retirement age and move them toward funding the lion's share of their own pensions, like their counterparts in private industry.
"Our union fought hard for these benefits," said 40-year-old Ricardo Lopez, a nurse in Mexico's vast public health system who joined an estimated 60,000 protesters in Mexico City's central plaza. "We're here today to show [Mexican President Vicente] Fox that if he wants to fight, we're ready.... We'll strike if we have to."
Such talk is being dismissed as mere posturing. But it illustrates how difficult and divisive social security reform remains in the region that pioneered the trend two decades ago.
Change hasn't been smooth or easy. Like Mexico, other Latin American countries are finding that pension reform isn't a one-time quick fix but a long-term process fraught with obstacles. These countries continue to grapple with the question of how to provide for their seniors without crushing taxpayers, shortchanging other social programs or stunting economic growth.
Some nations are struggling under two-tier systems that kept previous benefits intact for older workers with no clear way to pay for them. Others are bedeviled by large and growing underground economies that siphon off workers who could help pay some of the freight. Others didn't make needed changes to other parts of their economies that were necessary for pension reform to succeed.
"The lesson is that not all reforms are created equal," said L. Jacobo Rodriguez, a financial services analyst at the Cato Institute in Washington. The U.S. "could learn a lot by watching our neighbors," he said.
There has been plenty to watch:
* Brazilian President Luiz Inacio Lula da Silva in December won approval of legislation to deflate ballooning pension benefits for state workers, who typically retired with full salaries plus cost-of-living adjustments. In the process, the leftist leader angered some of the people who had swept him to power as part of a popular revolt against conservative economic policies.
* An unemployed Bolivian miner, distraught over the government's refusal to return what he had paid into the state pension system, strapped on dynamite and blew himself up inside a federal building in La Paz last month, killing two policemen as well. The deaths focused attention on the plight of thousands of other Bolivian workers who have been stiffed on retirement benefits due in part to a gap in coverage between the old state pension plan and the private system that Bolivia created in 1996.
* Workers in Argentina saw the value of their personal retirement savings accounts plunge in 2002 after the nation devalued its currency and defaulted on government bonds held by private-sector pension funds. The government has offered to settle its debts for the equivalent of 25 cents on the dollar, enraging workers who have been required to contribute to these individual savings plans since 1994.
These conflicts underscore the tough work that lies ahead for the United States. Federal Reserve Chairman Alan Greenspan caused a tizzy in February when he called for reducing Social Security benefits and raising the retirement age.
Without changes, the Social Security system is expected to be insolvent in less than 40 years, as the retirement of 77 million baby boomers swamps the program's finances.
