universal pensions and Mexican politics

On Sunday, July 1st, Mexican voters will choose 500 members of the lower house (Chamber of Deputies – three-year terms), 128 members of the upper house (Senate – six-year terms) and, most important, a new President of the Republic, for a six-year term. If leftist candidate Andrés Manuel Lopez Obrador is elected president, every resident of Mexico 68 years of age and older will receive a pension from the federal government beginning January 2013. Members of indigenous communities will qualify for pensions from the age of 65. The monthly pension will be set at 15 minimum daily wages, amounting in 2012 to MX$934.95 (about US$70) in Mexico City and the northern border, and roughly 5% less in other parts of the country, where minimum wages are lower. In Mexico, this amount is known as “half a minimum salary”, which assumes a minimum-wage employee is paid for 30 days work each month. The proposed pension is universal, available to anyone who passes a test of age and residence, regardless of income or wealth, so the total number of pensioners is expected to reach nearly five and a half million. The universal pension is central to the campaign of Lopez Obrador, who provided full details of the scheme, including its fiscal cost, in a 4 April 2012 press conference (Spanish only) that can be viewed here.

Lopez Obrador, known also as AMLO, is now 59 years old. This is his second campaign for president. Six years ago, in a disputed election, he lost by 0.56 percentage points to Felipe Calderón of the conservative Partido Acción Nacional (PAN), the party of the then incumbent president, Vicente Fox. Then, as now, AMLO promised universe pensions, but from the age of 70 rather than 68. Opponents criticised AMLO’s proposal as impractical and unjust – impractical because the money could be better spent on useful projects, such as construction of schools and hospitals, unjust because workers should save for their own retirement. President Vicente Fox, in a radio address to the nation, famously said “A mí me parece terriblemente injusto que a otros, simple y sencillamente por estar como adultos mayores, se les cubra con el dinero precisamente de quienes trabajan” (To me it seems terribly unjust that some persons, solely because they happen to be elderly, receive money from those who are working). See here for the original Spanish, and here for an English translation of portions of Fox’s radio address.

AMLO’s universal pension amounts to less than 10% of Mexico’s per capita GDP, which is not very generous, by international standards. In 2001, AMLO launched a similar scheme in Mexico City, while he was Mayor, and funded it by reducing other expenses rather than increase taxes. In his press conference, AMLO claims that the fiscal cost of the pension will amount to 1.6% of the government’s total budget for 2013. This is true, but irrelevant, because general government includes all levels of government. The relevant figure is fiscal cost as a percentage of central government expenditure, which is 2.1%. Even so, AMLO should be able to finance a universal pension without new sources of revenue, just as he did in Mexico City, where the fiscal cost was a much larger 4% of government expenditure. AMLO left office in 2005 with a record approval of 84%, in part because of the popularity of the universal pension. The age of eligibility – initially 70 years – was lowered to 68 in the year 2009. Today, 480 thousand pensioners in Mexico City each month receive benefits equal to half a minimum salary, plus other benefits, including free health care and free use of public transportation.

Only Chiapas, of the 31 states of Mexico, followed the lead of Mexico City in providing pensions to the elderly with no test other than age and residence. Chiapas, an extremely poor state that borders Guatemala in the south, in 2007 began to provide monthly pensions of 550 pesos to all residents from the age of 64. AMLO’s followers in the Chamber of Deputies were able to pass legislation in 2007 to provide universal, non-contributory pensions to at least some of the elderly in Mexico, in the modest amount of 500 pesos a month, paid bi-monthly, without indexing. The federal pensions are known as “70 y más” (70 and more, or 70+). Benefits were initially restricted to residents of small, rural communities with fewer than 2,500 inhabitants. This legislation gained the support of deputies from other parties because there was considerable unrest in rural communities at the time, so rural pensions were useful. Also, rural communities in Mexico tend to be much poorer than urban communities, so it is an indirect way of targeting the poor. The following year (2008) the Chamber of Deputies increased the allowable size of community to 20,000. In 2009, the Chamber increased the allowable size again, to 30.000, but the size of the pension itself was kept at 500 pesos. If the 70+ pension had been indexed in 2007 to the minimum wage, its value in 2012 would have reached 616 pesos.

On Tuesday, 17 January 2012, the unthinkable happened. President Calderón, the same person who, six years ago, campaigned against AMLO and against universal pensions, announced that his government was extending immediately the rural 70+ scheme to all areas of Mexico – urban as well as rural – and promised to increase the number of 70+ pensioners to 3.5 million (from about two million) before completing his term of office, in December 2012. If this target is reached, approximately 75% of Mexico’s 70+ population will receive a 70+ pension. The size of the pension remains fixed at 500 pesos a month, about half that proposed by AMLO, and still lacks indexing. More important, the rules now include a pension test: no-one who receives a federal government pension (including social security, civil service, and PEMEX – the large national oil company) will be eligible for 70+ pension. It is not clear whether the new rule applies also to those living in communities smaller than 30,000, but this is a moot point if – as is likely – no-one in a rural community receives any federal pension other than the 70+ pension.

It is now clear that no test, other than age, residence and the federal pension test, will apply to the federal 70+ scheme, which means that Mexicans are now gaining access to a Universal Minimum Pension. Even those who receive a universal pension (in Chiapas and Mexico City) are eligible for the 500 peso 70+ pension provided, of course, that they are at least 70 years old.  This is not a full Universal Pension, the amount of the pension is quite small, and it lacks indexing, but it does reduce the appeal of AMLO’s campaign for a universal pension. The PAN candidate (Josefina Vázquez Mota, since an incumbent president is not allowed by law to run for a second term) promises to carry on with the ‘new religion’ that President Calderón acquired in his last year of office. Enrique Peña Nieto, candidate for the PRI (the party that ruled Mexico for more than 70 years, until the PAN won the presidential elections in 2000) promises to implement something called “universal social security”. It is not yet clear to me what “universal social security” is. I will blog on this later, once I figure it out.

Larry Willmore


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