Petro’s social reforms: the scenarios that the initiatives face

After the approval of the pension reform in Congress, Gustavo Petro’s government continues to carry out its other pillar projects on the agenda: the labor law, the Statutory Law of Education and the announced health and public services reforms.

In conversation with Portafolio, Hernando Zuleta, dean of the Faculty of Economics at the Universidad de los Andes, analyzed what is coming for social reforms.

(Read more: Great challenges that the pension reform will face to pass the Constitutional Court)

How do you see the possibility of the pension reform being declared unconstitutional?

The reform was approved, but the issue is that the debates were not sustained and there are a series of particularities of the approval process that are controversial, to say the least.
Surely, a number of lawsuits are going to arrive and the big question is whether the Constitutional Court is going to take the deadlines it usually takes or is it going to decree one of those preventive measures, as it has done before, and paralyze the implementation of the reform until there is a, let’s say, definitive ruling.

Basically, if the Court takes all its time, I think there will be a number of traumas, because, as many analysts have said, Colpensiones is not prepared to receive the entire operation that the pension reform demands, so if the Court does not pronounce quickly, we are going to have, in the short term, quite serious chaos in terms of pensions.

If Colpensiones is not prepared, if the entity’s own union said that they were not prepared for the changes of the reform, why the Government’s eagerness to carry out this and other projects?

Is hard to understand. This reform gives Colpensiones a huge amount of money and that gives Colpensiones cash to do things. So, the first thing is the possible insight that they need that box for political movements, for example.

The other possibility is that Gustavo Petro’s government has this desire to show things quickly, to generate compelling facts. So, they are afraid that if it is not implemented now, things will get bogged down.

I don’t know which of the two is the correct reason or if there is a third, but I clearly think it is a totally inconvenient desire.

The message from the Government, from the entire Historical Pact movement, is that here is a long-term political project that they want to consolidate and that will generate new leaders. So, if the Government continues to advance without showing results, even on paper, it gives the impression that they are actually incapable of producing changes. I think there is something of that in the desire to push for changes.

What are, for you, the approved alarm points in the pension?

First, in my opinion, the reform is full of problems. Starting with the threshold of 2.3 minimum wages for contributions. This implies that all pensions up to 2.3 minimum wages (that is the vast majority of pension savings) go to the simple distribution system, and the simple distribution system is very good when the population grows, or at least when the population It does not decrease, but we are in the opposite case: a decreasing population.

So very soon we are going to see that the Colpensiones deficit is going to grow and, after 50 years, it is going to explode. That is so clear that the Government says further reform is required.

Another problem is related to informality, and informality is associated with the low participation of workers in pension contributions. And here, in this reform, there is nothing in that direction. In fact, the subsidy, or what they call the first pillar, is good because it reduces poverty in the elderly, but it can generate more incentives for people to decide not to contribute.

Fundamentally, a worker who is informal, one moment, formal, the other, etc., and given the certainty that he will have a basic income, says ‘well, I better not contribute and I have my informal income, but I complete the entire time’.

(More news: Education and labor reforms, the new priorities of Gustavo Petro’s government)

And what do you take away from the project, what do you think is positive?

I would make two points. The subsidy, the first pillar, which directly attacks poverty in older adults, and the fact that those above 2.3 minimum wages are no longer in Colpensiones, so the subsidies for high pensions end.

Today, the reform is a fact, how will private pension funds feel its effects?

The problem in Colombia is that, as you say, it is a fact today, but we will see what happens with the Constitutional Court later.

Currently, an amount of money enters the financial system, via contributions to private funds. Basically, the capital market in the country is fed by private pension funds and we are taking a large amount of resources from them. I think that in about 10, 20 years, we can be calculating that the effect could be in half of the GDP, up to 60% of the GDP. This being the case, the operation of private funds has to be reduced.

There’s the issue that fees can go up, right? So there’s a lot of discussion about that, and I think that since the volume is reduced monumentally, the profits of the private pension funds are going to be reduced, and the capital in Colombia is going to be reduced as well.

If there was consensus that a pension reform was necessary, what happened so that a project could not be built that would leave everyone alone?

There are ideological differences. To begin with, there are people who believe that pensions have to be managed by the State and there are people who believe that no, that pensions can be managed either by the State or by the private sector, to the extent that they fulfill their function, and that ideological difference makes it difficult to bring the parties together.

Furthermore, President Petro had a proposal that he believed was fundamental, and it is very difficult for him to give up points. For him, almost all points are necessary. In fact, for Petro, giving up from 4 to 2.3 minimum wages for the contribution threshold was a defeat.

(Read more: The controversies that have the education reform in suspense)

(See: What the pension reform must comply with so that it is not declared unconstitutional)

What do you think was the ideal threshold for listing?

It seems to me that the threshold should be 1.5 minimum wages. And the reason is that a person who contributes 1.5 minimum wages retires, in any case, with one minimum wage. So, that would guarantee that only people who receive up to the minimum wage receive the subsidies.

How do you see the labor reform: does this project have a future?

I think she comes out of this legislature alive and the reason is that the Government is very committed, it is putting everything into it.

Looking to the future, my first reaction, my natural reaction, would be to say that it will fall: I don’t think it will be approved because it does not generate enough consensus, because the Government itself has said that it is not designed to generate employment and, for me , the Government is very worn out.

We must also remember that more than 20 articles have been eliminated and that will weigh on its survival: there will be very strong tension between those who oppose it, between those who want to pass it as it is and those who want to recover what was lost along the way. So I think that achieving consensus there is going to be difficult.

However, given what happened with the pension, anything can happen.

What do you think are the positive points and negative points of this labor project?

Well, it has to strengthen the protection of union rights, that is good for some, bad for others. The bad thing is that it does not attack the fundamental problems of the Colombian labor market, which are informality and unemployment: there is no article that one says will serve to create more employment, to make the labor market more flexible.

Labour reform

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What to expect from the Statutory Law of Education, the health reform and the future reform of public services?

I am going to be very crude: in all these projects there is a transversal axis that is the nationalization of the different sectors: pensions is taking from private funds and putting in Colpensiones, health is closing the EPS and setting up the Social Security Institute 2.0 and in education It is like the withering of private universities so that education can be provided by public universities.

In the case of the Statutory Law, a series of changes were proposed focused on improving the quality of education and less on this dilemma between public and private. Unfortunately, all of this was lost, so I think there will be a lot of resistance and, given that previous agreements are being torn down, I doubt that this reform will come to fruition.

With health, it seems to me that the Government’s strategy was to try to actually implement it. And how did you seek to do it? Well, drying up the EPS sources. This has to generate extremely large public EPS. Result? Something similar to Colpensiones. When the public EPS are not prepared to receive the members who are leaving the private EPS who have to withdraw, then we are going to have great health chaos. And here, for me, the way out is not clear.

And regarding the reform of public services, I believe that the Government’s objective is to gradually deprivatize the provision of public services. Their position has been to say things like that the prices of electrical energy are excessively high and that we must get our hands on the companies that generate them. Is this reform going to pass? I also do not think. I think they can pass decrees, things outside of Congress to regulate prices.

(More news: Social reforms of the Petro government: the panorama in the country)

CAMILO HERNÁNDEZ M.
Editor Portafolio.co