Post by unlawflcombatnt on Nov 16, 2007 6:26:12 GMT -6
from Public Citizen
Peru FTA & SS Privatization
Executive Summary
"In 2006, the Bush administration negotiated a NAFTA expansion pact with the Latin American country of Peru containing obscure provisions that would chill efforts to reverse the failed privatization of Peru’s social security system. These “free trade agreement” (FTA) terms would seem to only benefit one U.S. firm, Citibank, which is the largest shareholder in ProFuturo AFP, one of the private retirement account providers authorized to compete against the Peruvian government’s public social security system as part of the privatization.
Other U.S. firms could also gain rights to service the privatized social security system under the Peru FTA terms, as noted by the Bush administration’s Industry Trade Advisory Committee on Services and Finance Industries, who hope to use the Peru FTA as a precedent for expanding the reach of privatized social security systems internationally: “Negotiators for the United States and Peru are to be commended for the substantive and meaningful provisions included on pensions and asset management… U.S. portfolio managers will be able to provide asset management services… including to funds that manage Peru’s privatized social security accounts (AFPs).” The Peru FTA was signed in April 2006,2 but even before the midterm election, there was insufficient congressional support to implement it.
Peruvian labor federations leading the fight toreverse the privatization wrote requesting help from Democratic trade leaders to remedy the problem in early 2007. Similar requests were also made by Peruvian Archbishop Pedro Barreto and U.S. faith and fair trade groups.
Despite Democrats’ long-standing opposition to social security privatization and the fair trade mandate of the 2006 elections, the May 10 trade “deal” negotiated between some Democratic
leaders and the Bush administration to facilitate passage of the Peru FTA did not remedy the Peru social security privatization problem.
In simplest terms, the problem involves provisions of the Peru FTA that empower foreign investors to demand compensation in United Nations (UN) and World Bank tribunals for government actions that undermine their expected future profits as an investor in Peru. Under these terms, if Peru reversed its privatization, Citibank could use the FTA to seek Peruvian government compensation for its loss of future revenue caused by the “nationalization” of its investment in providing private retirement accounts. The FTA has an exception that would forbid
the U.S. government from suing in an FTA tribunal for the loss of financial service market access in private retirement accounts if the privatization were reversed. Thus, while the FTA has
safeguards for Peru’s legal right to reverse the privatization, the FTA undermines Peru’s practical ability to exercise those legal rights. This is the case because if Peru acted to exercise its
rights to terminate market access in private retirement accounts, it could be confronted with foreign investor demands for major compensation.
The amount that Citibank could demand could be considerable, as the right to provide the private accounts is not time-limited and, under the statute establishing the privatization, licenses can only be removed for cause. Peruvian labor and other civil society igures say that the Peru FTA provisions would severely chill their ability to win reversal of the privatization, because the government could not afford to pay a huge fine for the right to restore a public service. U.S. law would not allow businesses to obtain government compensation for policy reforms that change financial service market regulations. U.S. law would not allow a business to skirt domestic courts and bring a case to a foreign tribunal. But the Peru FTA’s foreign investor rights extend far beyond U.S. law. Fixing this problem would require nothing more than the insertion of a one-sentence exception to the Peru FTA’s “expropriation and compensation” provisions declaring that the reversal of the social security privatization is not subject to
investor-state claims for compensation.
Background: Dictatorships and corporate interests undermine the promise of social security
In President Franklin Delano Roosevelt’s 1935 message to Congress promoting his social security plan, he argued that, “Most of the other advanced countries of the world have already adopted it and their experience affords the knowledge that social insurance can be made a sound and workable project… We pay now for the dreadful consequence of economic insecurity – and dearly. This plan presents a more equitable and infinitely less expensive means of meeting these costs. We cannot afford to neglect the plain duty before us.”4 As promised, the public and universal nature of the U.S. social security system has kept costs low and sustained political support for the system, to the point where there is not any serious question of the political or actuarial soundness of the program.5
Despite the soundness of the program, financial service sector interests have often pushed for its privatization – not least because of the massive fees they would stand to collect under such a system.6 The Bush administration made partial privatization of the U.S. social security system a major second term priority, only to have this harmful plan blocked by the advocacy of millions of Americans, as well as congressional Democratic leaders such as Reps. Charles Rangel and Sander Levin (D-Mich.).
While privatization initiatives have been successfully blocked in the United States, other countries have not been so lucky. Under the Pinochet dictatorship, Chile’s social security system was privatized – a move that has proved disastrous, raising costs while failing to improve coverage or social equity.8 (An exposé in the Los Angeles Times reported, the Chilean “pension privatization took place figuratively at gunpoint. It is the product of a 17-year dictatorship that claimed an estimated 3,000 lives and forced hundreds of thousands of people into exile.”) Despite the failure of that system, the World Bank and International Monetary Fund (IMF) pushed pension privatization onto other Latin American countries both through loan conditionality and research advice throughout the 1990s.
The Chilean model was the original inspiration for Peru’s social security privatization. In fact, according to Peruvian officials, the country’s pension privatization “might not have been signed into law” if not for the policy advice of Pinochet regime officials. According to a leading study of the period, following the “politically motivated violence, hyperinflation, economic mayhem...."
Peru FTA & SS Privatization
Executive Summary
"In 2006, the Bush administration negotiated a NAFTA expansion pact with the Latin American country of Peru containing obscure provisions that would chill efforts to reverse the failed privatization of Peru’s social security system. These “free trade agreement” (FTA) terms would seem to only benefit one U.S. firm, Citibank, which is the largest shareholder in ProFuturo AFP, one of the private retirement account providers authorized to compete against the Peruvian government’s public social security system as part of the privatization.
Other U.S. firms could also gain rights to service the privatized social security system under the Peru FTA terms, as noted by the Bush administration’s Industry Trade Advisory Committee on Services and Finance Industries, who hope to use the Peru FTA as a precedent for expanding the reach of privatized social security systems internationally: “Negotiators for the United States and Peru are to be commended for the substantive and meaningful provisions included on pensions and asset management… U.S. portfolio managers will be able to provide asset management services… including to funds that manage Peru’s privatized social security accounts (AFPs).” The Peru FTA was signed in April 2006,2 but even before the midterm election, there was insufficient congressional support to implement it.
Peruvian labor federations leading the fight toreverse the privatization wrote requesting help from Democratic trade leaders to remedy the problem in early 2007. Similar requests were also made by Peruvian Archbishop Pedro Barreto and U.S. faith and fair trade groups.
Despite Democrats’ long-standing opposition to social security privatization and the fair trade mandate of the 2006 elections, the May 10 trade “deal” negotiated between some Democratic
leaders and the Bush administration to facilitate passage of the Peru FTA did not remedy the Peru social security privatization problem.
In simplest terms, the problem involves provisions of the Peru FTA that empower foreign investors to demand compensation in United Nations (UN) and World Bank tribunals for government actions that undermine their expected future profits as an investor in Peru. Under these terms, if Peru reversed its privatization, Citibank could use the FTA to seek Peruvian government compensation for its loss of future revenue caused by the “nationalization” of its investment in providing private retirement accounts. The FTA has an exception that would forbid
the U.S. government from suing in an FTA tribunal for the loss of financial service market access in private retirement accounts if the privatization were reversed. Thus, while the FTA has
safeguards for Peru’s legal right to reverse the privatization, the FTA undermines Peru’s practical ability to exercise those legal rights. This is the case because if Peru acted to exercise its
rights to terminate market access in private retirement accounts, it could be confronted with foreign investor demands for major compensation.
The amount that Citibank could demand could be considerable, as the right to provide the private accounts is not time-limited and, under the statute establishing the privatization, licenses can only be removed for cause. Peruvian labor and other civil society igures say that the Peru FTA provisions would severely chill their ability to win reversal of the privatization, because the government could not afford to pay a huge fine for the right to restore a public service. U.S. law would not allow businesses to obtain government compensation for policy reforms that change financial service market regulations. U.S. law would not allow a business to skirt domestic courts and bring a case to a foreign tribunal. But the Peru FTA’s foreign investor rights extend far beyond U.S. law. Fixing this problem would require nothing more than the insertion of a one-sentence exception to the Peru FTA’s “expropriation and compensation” provisions declaring that the reversal of the social security privatization is not subject to
investor-state claims for compensation.
Background: Dictatorships and corporate interests undermine the promise of social security
In President Franklin Delano Roosevelt’s 1935 message to Congress promoting his social security plan, he argued that, “Most of the other advanced countries of the world have already adopted it and their experience affords the knowledge that social insurance can be made a sound and workable project… We pay now for the dreadful consequence of economic insecurity – and dearly. This plan presents a more equitable and infinitely less expensive means of meeting these costs. We cannot afford to neglect the plain duty before us.”4 As promised, the public and universal nature of the U.S. social security system has kept costs low and sustained political support for the system, to the point where there is not any serious question of the political or actuarial soundness of the program.5
Despite the soundness of the program, financial service sector interests have often pushed for its privatization – not least because of the massive fees they would stand to collect under such a system.6 The Bush administration made partial privatization of the U.S. social security system a major second term priority, only to have this harmful plan blocked by the advocacy of millions of Americans, as well as congressional Democratic leaders such as Reps. Charles Rangel and Sander Levin (D-Mich.).
While privatization initiatives have been successfully blocked in the United States, other countries have not been so lucky. Under the Pinochet dictatorship, Chile’s social security system was privatized – a move that has proved disastrous, raising costs while failing to improve coverage or social equity.8 (An exposé in the Los Angeles Times reported, the Chilean “pension privatization took place figuratively at gunpoint. It is the product of a 17-year dictatorship that claimed an estimated 3,000 lives and forced hundreds of thousands of people into exile.”) Despite the failure of that system, the World Bank and International Monetary Fund (IMF) pushed pension privatization onto other Latin American countries both through loan conditionality and research advice throughout the 1990s.
The Chilean model was the original inspiration for Peru’s social security privatization. In fact, according to Peruvian officials, the country’s pension privatization “might not have been signed into law” if not for the policy advice of Pinochet regime officials. According to a leading study of the period, following the “politically motivated violence, hyperinflation, economic mayhem...."