It happens with reputation or credibility, which takes a lifetime to build, but can be lost in an instant. It is also common to find that, over the years, people tend to undervalue some of the things they have, precisely because they are there and have always been there, and they are unaware of the time and effort that many others before them invested to get those things to be there.
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This is what is about to happen with our capital market if the pension reform. Since the capital market is there and serves to finance the Nation, it seems that we are unaware of the effort of more than 30 years that it has taken to build what we have and the value of each of the parts that comprise it.
In particular, the individual savings regime of the pension system has been the cornerstone of capital market growth since the 1990s. Thanks to the existence of professional portfolio managers, with growing resources and willing to be invested In the very long term, it was that our capital market took off and that today allows private sector financing of dual carriageway highways, airports, wind or solar farms, and mass transportation systems, among many others, in Colombia.
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A capital market allows a company to dream big or, better yet, finance those dreams. The capital market transforms companies as it did through the democratization of shares with Ecopetrol, ISA and GEB, it transforms countries as it did with 4G roads and can contribute to the transformation of the planet, by facilitating the financing of the energy transition.
The General Pension System in Colombia has two bodies: the Average Premium (Colpensiones) and the Individual Savings (private funds).
The pension reform proposalThe Government’s has positive elements, such as the elimination of subsidies for high pensions and the strengthening of the non-pension solidarity pillar. But the reform, in its essence, aims to put an end to the individual savings system that has been the source of building financial savings in the country and is today the fundamental pillar of pension reforms in the world.
What countries are doing is giving more and more strength to the individual savings component and limiting the space of pay-as-you-go components, which by design are unsustainable and explain the high fiscal costs of pension systems. The government reform does the opposite: it passes 80 percent of the population to the pay-as-you-go system. Colpensionswithout correcting the structural imbalances of that system, and it bleeds the individual savings system.
As a result of this, the country’s pension debt will rise by about 30 points of GDP without increasing coverage, national savings will decrease because the Government will spend part of the resources to pay current Colpensiones pensions and the market of capital will lose its main source of resources and growth, which augurs a deterioration in the financing conditions of the economy, of companies and of large projects. The obsession with taking away the resources of the AFPs and creating a public savings fund without institutions, without experience and without clarity on how these resources are going to be managed, puts the savings of Colombians at serious risk. The irony is that we have the elements to achieve all the social objectives of the reform, without destroying the capital market.
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The reform must limit the distribution pillar to 1 smlv, create a public AFP that manages the resources of affiliates who want that to be their administrator, but in individual accounts and with the same conditions as private administrators, and must respect the Colombian right to choose.
Otherwise, if the reform is approved as it is, the Government will celebrate its success, but The country will see its capital market die and with it, we will lose the ability to finance those dreams that transform lives, regions and communities and the financial savings will become smaller and smaller.
JOHN PAUL CORDOBA
President of the Colombian Stock Exchange
