Country profile Bolivia: Financing the extension of social protection

ESS-33 27 Table 5. Bolivia: Social protection coverage indicators, 2000-2009 Indicator 2000 2005 2006 2007 2008 2009 Contributory pensions, contributors as of EAP 11,1 10,8 10,9 12,1 Health insurances, contributors as of EAP 12,4 14,4 14,5 15,7 Population 60 years and older, receiving contributory pension 17,6 15,6 15,5 15,3 15,7 Population 60 years and older, receiving non-contributory pension 62,1 75,8 71,7 75,2 110,7 Population 60 years and older, receiving pension 79,7 91,4 87,2 90,5 126,4 Coverage of social assistance programmes total population 4,0 5,0 16,8 23,1 33,6 36,8 Renta Dignidad 4,0 5,0 4,7 5,0 7,5 7,3 Bond Juancito Pinto - - 11,3 13,5 18,0 18,0 Bond Juana Azurduy 1 - - - - 3,6 Literacy programmes - - 0,8 4,6 8,2 8,0 1 The bond of motherhood Juana Azurduy begins from the month of May 2009. Source: APS, 2010; ILO, 2010b; International Monetary Fund, 2010b; World Bank, 2010; UDAPE, 2010; Ministry of Economy and Public Finances, 2010. Unlike the contributory programmes, all the non-contributory programmes expanded rapidly in the space of a few years, including the Renta dignidad, the Bono Juancito Pinto, the Bono Juana Azurduy and the newly created literacy programme Programa libre de alfabetización, with the total number of beneficiaries over the decade rising from 4 per cent to almost 37 per cent of the total population. The coverage of the Renta dignidad was particularly significant. In 2000 some 60 per cent of the population 60 years old and over were receiving non-contributory pensions. 5 Official data of registered beneficiaries from 2008 onwards combined with United Nations population projections ECLAC, 2010a indicate a coverage rate of 100 per cent. 6 These statistics illustrate the minor importance of the contributory component of the social security system, at least in terms of the number of people covered, and the relative ineffectiveness of social insurance in terms of its coverage over the years. The coverage indicators also allow us to assert that the creation of BONOSOL and its subsequent consolidation in the form of a universal old-age pension, the Renta dignidad, is perhaps the most important development in social protection policy in Bolivia during the last years. In fact, the most important feature of the structural reform of Bolivias pension system is the universal non-contributory pension scheme, much more significant perhaps than the transition from a defined benefit regime to an individual accounts scheme. The coverage statistics of Bolivias non-contributory programmes unquestionably make the country a success story in terms of policies dealing with universal social protection rights. It remains in the following sections to analyze the strategies for financing these measures in terms of sustainable fiscal space. 5 It should be noted that before 2006 the Renta Dignidad programme was universally granted to persons 65 years and older. 6 The coverage above 100 per cent can be justified by: some data flaws; cases in which one person receives more than one non-contributory pension fraud; andor the simultaneous reception of both types of pensions legally possible. 28 ESS-33 3.5. How fiscal space was created to finance the extension of non-contributory coverage? Because of the importance of social protection within national economies, creating fiscal space to finance the extension of coverage is one of the biggest challenges of social policy, as a universal policy usually requires the mobilization of a significant volume of resources. In Bolivia the expanded coverage of social protection programmes described above, largely in the form of non-contributory benefits, was made possible by the combination of two developments, each of which occurred in quite different political circumstances – and, one might say, almost in opposition to each other: a First, there was the massive sale of state assets to the private sector which occurred in the 1990s, known in Bolivia as the capitalization of state assets. 7 This process played a major role in the creation of the Collective Capitalization Fund FCC. The FCCs sole function was to support the BONOSOL, an annuity benefit payable to all Bolivians from the age of 65 years who were 21 years old or over in December 1995. It is important to bear in mind that this process of sale of state assets took place at the same time as the reform of the Bolivian pension system, which introduced individual accounts under the private administration of the Pension Fund Administrators AFP. BONOSOL was thus a crucial element in the economic policy aimed at the privatization of state assets. b Secondly, the re-nationalization of the hydrocarbon sector was decreed in 2006. Under the new law the State recovered full ownership, possession or control of the countrys natural hydrocarbon resources. Moreover, the nationalization law established a new scheme that changed radically the redeployment of revenue from the production of hydrocarbon: 82 per cent of revenue for the State and 18 per cent for private companies. As a result, the Bolivian States revenue from the exploitation and sale of hydrocarbons was multiplied, and this in turn brought a significant increase in fiscal revenue and hence fiscal space. The consolidation of Renta Dignidad, then, is the historical product of two politically and ideologically antagonistic processes. Its predecessor, BONOSOL was devised as an instrument of political compensation for the privatization of state assets during the rise of neoliberalism in Bolivia. At that early stage, it was a means of delivering a non- contributory pension scheme to a specific generation of Bolivians. The second phase, which consolidated the instrument´s financing and universality as a citizens right, occurred as a result of the transfer of political power into the hands of socialist leaders. As a way of creating fiscal space, the Bolivian method seems innovative, since it derives from a renegotiation of the terms for exploiting the countrys natural resources. In fact, since the 1990s Bolivias fiscal revenue has been growing almost continuously figure 8, 7 The capitalization involved increasing the capital of some state enterprises, through new contributions from private foreign investors, in an amount equal to their book value. Thus, 50 per cent of the shares passed into the hands of private investors, while the other 50 per cent were offered to Bolivian citizens those domiciled in the country and who reached the age of 21 years before 31 December 1995. These shares constituted the Collective Capitalization Fund FCC, whose administration was entrusted to the Pension Fund Administrators AFP of the mandatory social insurance scheme. The profits from the sale of these shares were BONOSOLs sole source of financing. The whole process was reversed in 2006 under the administration of President Juan Evo Morales, who was brought back into power by a referendum that took place in 2004.