Stiglitz against the World Bank tribunal: defended the government and criticized the trials the country faces for the nationalization of the AFJP

Joseph stiglitz, Nobel Prize in Economics and mentor to the Minister of the Economy Martin guzman, along with 100 other academics, “strongly” condemned the business lawsuits against Argentina and Bolivia in the International Center for Settlement of Investment Disputes (ICSID) tribunal after the nationalization of private pension systems in both countries, and that in Argentina meant the dissolution of the AFJP system.

In a declaration signed by Stiglitz, Juan Somavia, Jeffrey Sachs, José Antonio Ocampo and more than 100 academics and development experts, he was warned that “if Argentina and Bolivia lose the lawsuits” it will mean that “Poor citizens and elderly retirees will have to compensate rich financial corporations”. More specifically, they condemned the fact that “private insurers are suing Argentina and Bolivia for potential loss of income due to the cancellation of the privatization of pension programs”.

Argentina faces two court cases for nationalization of pension system dependent on the World Bank. In 2017, the first company to visit ICSID was Metlife. The “subject of the dispute” declared by the firm is the “pension system” and cites to justify its request the Bilateral Investment Treaty signed in 1991 between the United States and Argentina.

Metlife maintains that the Argentinian state did not respect your rights as an investor during the execution of the nationalization of the AFJP and the nationalization of the pension system. A similar line follows the request made by Dutch NN Insurance International.

Argentina is facing two lawsuits before this court depending on the World Bank for the nationalization of the pension system. In 2017, the first company to visit ICSID was Metlife and in 2018, NN Insurance International.

The trial development process is slow. In fact, three and a half years after being presented to ICSID, the Metlife case still has its first hearing to come. The NN Insurance International lawsuit has also already had its tribunal formed and is still at the stage of cross-referencing documentation and information between that company and the Treasury.

Researchers led by Stiglitz noted that “Argentina and Bolivia are among only 30 countries (out of 192 in the world) which have experienced the privatization of their pension systems”, and that today “most of these countries are canceling this privatization”.

The retirement policy is not about guaranteeing benefits to private insurance companies. Pension systems exist to provide income security for the elderly, to ensure that the elderly retire with adequate pensions, ”they stressed. In this way, they felt that “it is the duty of the governments of Argentina and Bolivia to better ensure the well-being of their citizens. In 2008-09, this involved the reinstallation of a public pension system ”.

According to experts, “they did not act alone, other governments have also rolled back the privatization of pensions due to proven shortcomings in the private pension system, as coverage rates declined or stagnated; pension benefits have deteriorated; poverty among the elderly was compounded by low pensions; gender and income inequalities have increased, among others ”.

They pointed out that in Argentina, coverage rates for men increased from 46% (in 1993, before the reform) to 35% (in 2002) and for women only 31%; and in Bolivia, they have stagnated. They also recalled that “the initial estimates place the cost at 0.2% of GDP, subsequently the World Bank increased the cost estimate to 3.6% of GDP, ie 18 times the initial estimate; in Bolivia, the real transition costs of the reform were 2.5 times higher than the initial projections ”.

They also mentioned the administrative costs which, in Argentina, “They went from 6.6% of contributions in 1990 before privatization to 50.8% in 2002; in Bolivia, from 8.6% in 1992 to 18.1% in 2002 after privatization “, among other shocking figures.

In addition, they said that “private systems are expensive: the high transition costs of privatization created strong fiscal pressures; private pension administrators incurred high administrative costs and made excessive profits from these extraordinary administrative costs ”. For Stiglitz and others, “the governments of Argentina and Bolivia have made legitimate decisions in the interest of their citizens which must be respected, within the framework of a country’s sovereignty.”

The trial development process is slow. In fact, three and a half years after being brought before ICSID, the Metlife case still has its first hearing before it.

“It is reprehensible that investment treaty arbitration allows companies to initiate dispute solutions against governments – and ultimately against individuals – to continue to benefit,” they said. In another line of proposals, they objected to the lack of transparency in the process within the World Bank’s ICSID.

“While businesses may say procedural protections are necessary, these cases affect the lives of millions of Argentines and Bolivians. They must be open and transparent, ”they said. Finally, they said the lawsuits should serve as a warning to the majority of countries around the world that have not privatized mandatory pensions but may be under pressure to do so.

As published by Infobae, Stiglitz was held a few days ago with the Minister of the Economy Martin guzman a meeting in New York, during the official’s tour of the United States to meet with a group of investors and with the International Monetary Fund. Guzmán and Stiglitz agreed to the description of the global economic map at the time of COVID-19, and the need to deepen the actions of multilateral organizations to save poor and medium-sized countries who do not have access to credit at low market rates.

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