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World Round-Up
November 22, 1999
While the United States continues to debate Social Security reform, the rest
of the world is beginning to transition to retirement systems based on individually
owned, privately invested accounts. Croatia has become the fourth Eastern European
country to begin privatizing its Social Security system, following Poland, Hungary,
and Kazakhstan. The new system will go into effect on July 1, 2000. Individuals
will be able to choose to divert 5 percentage points of the 21.5 percent payroll
tax into individual accounts. Three private companies have been authorized to
manage the accounts; four others are awaiting approval.
Several other Eastern European countries may soon follow suit. The lower house
of Romania's parliament is expected to approve individual account legislation
by the first of the year, with final approval possible next spring. Legislation
authorizing individual accounts is also nearing approval in Latvia and Estonia,
although the Latvian legislation may be delayed because of a controversial referendum
on raising the retirement age for the government-run system. Russia is also
considering pension reforms involving individual accounts. However, the plan
currently before the Duma would initially allow the Russian government to manage
the accounts, though subsequent management by private companies might be possible.
Finally, in one setback to the worldwide trend toward privatization, the new
leftist government of Venezuela postponed plans to introduce a Chilean-style
system that had been approved by the previous government. The country's largest
business federation, Fedecamaras, warned that abandoning the new system could
have serious economic consequences. However, President Hugo Chavez, who has
amassed near dictatorial powers while pursuing socialist economic policies,
has indicated he may scrap the reforms.
The Cato Institute, in conjunction with The Economist, will host a
conference on international Social Security reform on March 9-10, 2000, at the
Roosevelt Hotel in New York City. Confirmed speakers include: Jose Pinera, architect
of Chile's successful privatization; Felipe Ortiz, president of Peru's APOYO
Institute; Tomasz Frontczak, president of AIG (Poland); William Shipman of State
Street Global Advisors; Wade Dokken, president of American Skandia Marketing;
and Milton Ezrati, chief investment officer for Nomura Capital Management.
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