Social Security: the Economic Crisis Grows

Reforming the pension system is an ever more urgent task, given that the Nicaraguan Social Security Institute (INSS) has suffered losses for the fourth consecutive year (a deficit of US $44,295,000 in 2016), bringing ever closer the moment of an economic collapse if urgent changes aren’t made.

“The deficit will continue until an integral reform is carried out,” assured Manuel Ruíz, professor and specialist in social security systems, during an interview for the segment “Cuentas Claras” [“Clear Accounting”], part of the “Esta Noche”[“Tonight”] television show broadcast over Channel 12.

During the 2007-11 presidential period, INSS accumulated some US $236.8 million in reserves, despite a dip in 2009 caused by the global financial crisis. In contrast, over the last five years the Institute has accumulated losses of over US $100.1 million a fact that has set all the alarm bells ringing.

The problems in the Social Security Institute are many, scarce coverage; jobs with low productivity; a high-level bureaucracy that is generously well paid; a group that receives pensions without having contributed the minimum amount stipulated by law; an investment plan that is secret and discretional; and a limited slate of actors that decide on changes, leaving out the rest of society.

Ruiz noted that 2016’s 44.3 million dollar deficit can largely be explained by the approval of pensions (albeit reduced ones) for a group of pensioners that never fulfilled the minimum contribution time of 750 weeks, combined with the fact that 14% of the INSS income is going to administrative expenses, although only 6.25% of it is supposed to be earmarked for this.

The Institute “should have 1,500 employees, but it has 3,000.  They need to carry out an administrative reorganization to reduce these flourishing expenses,” he stated.  That “reengineering” should include a solution for the fact that those well-paid INSS workers receive not one, but two Xmas bonus salaries.

Need to sign up workers in the countryside, the jails and the homes

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INSS personnel also need to find and sign up the workers where they are: in the informal businesses, in the countryside, in the home (domestic employees), and even in the jails, in order to increase the number of contributors and thus the income of the Social Security Institute. In the first place, they need to be thinking about increasing the national coverage - currently some 23–24% - and trying to reach the levels of Costa Rican system, which is 75%.

“Nicaragua has an economically active population of 3.5 million people, of which only 850,000 are signed on with the pension system,” Ruíz detailed, demonstrating that there’s a lot of room to grow in.

Ruiz has no qualms about comparing the Nicaraguan retirement system with others in the region, especially those in Guatemala, Costa Rica and Panama each of which have its own investment laws, while in Nicaragua such decisions are made by the INSS Executive Council.

“Nicaragua doesn’t have a law or a set of regulations for investments,” he noted.  While in the above three countries, they publish the list of where the contributors’ resources are invested, and even the returns that they realize, in Nicaragua you have to wait until a journalistic investigation sheds light on the decisions made with public money.

“The National Assembly should name the INSS Director and the head of the Executive Council, according to proposals made by the contributors and the pensioners,” and not only by the executive power, the expert said.

“The problem is in negotiating and finding consensus for a reform.  It’s a process that needs “two to three years” in order to have it enter into validity in 2019.  It should include a multitude of participants: workers, retirees, employers, academia, the unions, the International Labor Organization, etc.

“There should be the greatest possible consensus.  It would be a large error to look for a solution only through talks between the government and the private sector,” Ruiz said, adding that these two sectors negotiated in 2013, but “everything is still the same as it was then.”