| | |  Business News 
Mexico Should Push to Double Pension Contributions
 Jose Enrique Arrioja & Carlos Manuel Rodriguez - Bloomberg
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January 19, 2010
 |  | Without a doubt, today’s 6.5 percent contribution is insufficient for a proper pension.
- Oscar Franco |  | | |
The Mexican government should require companies and employees to more than double their pension contributions to bolster retirement incomes and the economy, said Oscar Franco, head of the pension association.
The limit should “gradually” be raised to 14 percent of an employee’s salary, said Franco, executive director of the pension group known as Amafore.
“Without a doubt, today’s 6.5 percent contribution is insufficient for a proper pension,” Franco said in today in an interview in Bloomberg’s Mexico City offices. Amafore plans to lobby Congress this year on the issue because “it cannot be postponed,” he said.
Raising pension fund contributions would increase these holdings to up to 50 percent of gross domestic product by 2030 and help Mexico invest in infrastructure projects, Franco said. Pension funds currently represent 10 percent of GDP, according to Amafore, which represents Mexico’s 14 government-regulated funds.
Assets managed by the funds, known as Afores, rose about 23 percent last year to 1.151 trillion pesos ($90.8 billion), according to data from Mexican regulator Consar, making them Mexico’s biggest institutional investors. That balance may grow 18 percent or 20 percent annually, Franco said.
“The big challenge would be to translate that potential growth to an economic boost and better returns,” Franco said.
On October 1, President Felipe Calderon announced new legislation to accelerate plans to build highways and ports and encourage investment to help the economy.
Broader Investment Options
The proposal would allow Mexico’s pension funds to buy stocks outside of indexes and take part in initial public offerings to channel resources to infrastructure, the Finance Ministry said. The funds could also participate in infrastructure project trusts, investments that mix bond guarantees with stock returns.
As of December, the pension funds invested 66 percent of their portfolios in government debt while 13 percent was invested in the stock market, mostly in domestic securities.
Calderon set a goal last year of spending 2.5 trillion pesos in private and public money during his six-year term on such projects. Mexico has postponed some projects amid the worst economic contraction since the 1930s.
The new proposal would cut bureaucracy, reducing the time it takes to carry out public works projects by 30 percent, Calderon said. It may allow the government to announce 61 billion pesos in new projects by year-end and to increase financing for projects by 125 billion pesos by 2012, he said.
To contact the reporters on this story: Jose Enrique Arrioja in Mexico City at jarrioja(at)bloomberg.net; Carlos M. Rodriguez in Mexico City at carlosmr(at)bloomberg.net.
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