(Nota de JP. Como explica Mary O'Grady en esta columna, la Cámara de Diputados de México acaba de aprobar incluir a casi 3 millones de trabajadores del gobierno--incluyendo profesores- al sistema privado de capitalización, instaurado en 1997 en el país azteca bajo el Presidente Zedillo. Recuerdo que en el verano del 2005, en la residencia de "Los Pinos", le comenté al Presidente Fox que lamentaba que, a diferencia de 35 millones de mexicanos, él no pudiera tener una cuenta de ahorro previsional en una AFORE, como allá se llaman las AFP. La reforma mexicana de 1997 que introdujo el modelo chileno de capitalización individual no incluyó a los funcionarios de gobierno, como lo hizo Chile en 1980, y cometió el error de no contemplar un bono de reconocimiento en la transición, lo que ahora si se incluye. Si esta reforma es aprobada por el Senado esta semana, será un gran logro del gobierno Calderón).

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Ever since Mexican President Felipe Calderón won election in July with just under 34% of the vote, critics and supporters alike have cast doubt on his ability to govern. But now it looks like Mr. Calderón, who is less than four months into his six-year term and lacks a majority in Congress, may be about to pocket a major legislative victory.
 

And on no less an issue than the transformation of the pension system covering federal workers from pay-as-you-go to a fully funded system of individual accounts. As such a revolutionary breakthrough in corporatist Mexico suggests, the deal has implications for the Calderón presidency that reach far beyond the matter at hand.

The catalyst for this reform is the grim outlook for Mexico's Institute of Social Security for Government Employees (ISSSTE), which manages the pension accounts and health benefits of some 2.8 million active and retired federal employees. These include bureaucrats, doctors, nurses, health-care workers and teachers, but not the employees of the state-owned oil company Pemex.

ISSSTE's pension arm currently provides retirement benefits to 580,000 individuals and like so many pay-as-you-go systems, the agency is operating in the red. With an average retirement age of 56 and retirees living longer, ISSSTE has obligations that far outstrip its income and every year the deficit grows. In 2000, its pension deficit was 10 billion pesos (US $909 million). This year the government has set aside 42 billion pesos to fill the gap. By 2012 the shortfall is forecast to hit 77 billion pesos. According to the Finance Ministry, ISSSTE's actuarial deficit in pensions is equal to over 50% of Mexican GDP. ISSSTE is a ticking time bomb.

Mexicans have been known to joke that the best workers in the ISSSTE system could hope for is to die early, before the house of cards collapses. Still, the Calderón government did have to win agreement from the union bosses for individual accounts and it also had to find enough votes in Congress from the opposition to get it through. That's what makes this victory historic.

The centerpiece of the reform, which passed the lower house last week and is expected to pass the Senate this week, is the establishment of worker-owned, individual accounts to replace the communal pool at ISSSTE. There are no changes for those already retired. Current workers will have the choice of staying with the government's defined-benefit plan and accepting gradual increases in the retirement age, or migrating to the new individual account, defined-contribution system.

The new plan differs from the similar pension reform for private-sector workers carried out in 1997 in that it gives those who migrate to the new system a recognition bond, which represents their vested rights and which will be rolled over into their new individual account. This makes the plan closer to the Chilean pension reform than to the previous Mexican reform. Another similarity to Chile is the fact that new hires will not have the option of joining the old system; through attrition, all government employees will eventually be owners of their pensions.

One of the important but underplayed provisions of the bill is the change in portability. Under the old system, workers who left their government jobs for the private sector before completing 15 years of service lost their acquired pension benefits. This created an incentive for dissatisfied employees to stay at their jobs even if they had an opportunity to do something more suitable in the private sector. Under the new system, benefits become portable and employees are free to pursue career changes without penalty.

But the government will transfer 50 billion pesos of worker pensions that are now managed by banks to a new arm of ISSTE that will own the monopoly privilege of managing pension assets for both the old system and the new system for three years. This raises lots of red flags since the monopoly has promised to invest in government projects such as housing and highways. Such "investment" in Mexico over the past four decades has been synonymous with financial ruin.

One check that may help mitigate management mischief is the fact that the government agency will have to abide by legally binding pension guidelines of portfolio diversification, investment-grade paper and restrictions on equity positions that already constrain private-sector pension managers. With proper oversight disaster may be averted.

Finally, it is worth noting the political developments surrounding this reform. It's not surprising that the union leadership seems to have preferred to work with Mr. Calderón's National Action Party (PAN) over the far-left Revolutionary Democratic Party (PRD). The PRD's leader, Andrés Manuel López Obrador, knows how to redistribute wealth but he doesn't know how to create it. With Mexican budgets strained, it is pretty clear that the latter is the key to the retirement security for workers.

But it is the cooperation of the Institutional Revolutionary Party (PRI) -along with two smaller parties- that made the difference. The pension reform suggests that the PRI is interested in restoring its image by constructively participating in governance rather than continuing to play the obstructionist role it held during the Fox government. If the PAN, under Mr. Calderón's leadership, is big enough to share the credit, Mexico might experience more important changes where this one came from.