El Salvador: Treasury Puts Hands in Pockets of Workers

The issuance of Pension Investment Certificates at a rate of 3% means a charge to future income of contributors in the Salvadoran AFP.

Thursday, July 16, 2015

The refusal by the Ministry of Finance to release the documents that justify the decision to pay a fee of 3% on the savings of the AFP entering the 'Fideicomiso de Obligaciones Previsionales' (FOP), was declared illegal by the Institute for Access to Public Information (IAIP), which stated that financial secrecy does not apply to the FOP and the criteria that supported the decision must be revealed.

The IAIP said in an article in Elsalvador.com that "... there has not been a request to publish information of individuals .... The Treasury and Bandesal have been ordered to provide the information on which it was decided to issue $111 million in Pension Investment Certificates (CIP by their initials in Spanish) and pay at a rate of 3%. "

"... The Finance Minister Carlos Caceres said in the Legislative Assembly that the state has funds to pay only a maximum of 4% to workers. The current rate of 3% is temporary, since it is up to the legislature to define the new payment scheme for the IPC. In December, the Supreme Court outlawed the payment scheme of the CIP and ordered the assembly to define a new rate. Comtradefop has requested that the government pay 7.6% interest on the contributions. "

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More on this topic

El Salvador's "Restricted Default" Status Removed

May 2017

Fitch Ratings has raised the Salvadoran debt rating to CCC, but warned that political polarization could continue to affect the approval of new long-term loans.

The decision to raise the IDR risk rating in local currency was taken by Fitch Ratings after the government paid interest on Pension Funds Certificates (CIPs) to private pension funds on April 28. 

El Salvador in "Restricted Default"

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Fitch Ratings has downgraded El Salvador's Long-term (LT) Local Currency Issuer Default Rating (IDR) to 'RD' (Restricted Default) from 'B'/Negative.

From a report by Fitch Ratings:

Fitch Ratings-New York-10 April 2017: Fitch Ratings has downgraded El Salvador's Long-term (LT) Local Currency Issuer Default Rating (IDR) to 'RD' (Restricted Default) from 'B'/Negative.

Workers Lend Cheap Money to the State

February 2014

The interest rate that the Government of El Salvado pays for money from the Pension Funds is not more than 1.3%, while international investors are paid more than 7%.

Ricardo Soriano, Chairman of the Committee for the Defense of Workers Pension Fund of El Salvador (Comtradefop) reported that since the year 2006, the State has forced the Pension Fund Administrators (AFP) to invest the money belonging to Salvadoran workers in Pension Certificates, initially 30% and the 45% in 2012, money which has suffered a loss greater than $938 million each year.

Pension Investment Certificates in El Salvador

April 2012

While supportive of the proposed legal reforms to improve the profitability of pensions, the AFP has requested a minimum interest rate of 4% for the CIP.

The two Pension Fund Administrators (AFP in Spanish) are opposed to a limit on interest payments , because it would affect the benefits for contributors at the expense of protecting state spending.

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