Mexican Senate Approves Bill to Reform Social Security Finances

In a showdown with one of the nations’ most powerful unions, federal legislators on Thursday approved reforms aimed at shoring up Mexico’s financially troubled social security system, which provides healthcare for 50 million Mexicans.

In the predawn hours of an emergency session, the Mexican Senate took aim at ballooning pension liabilities that are straining the system’s finances to the breaking point.

Projections show that generous retirement benefits paid to government doctors, nurses and other social security workers will devour the system’s entire budget within 15 years if nothing is done to rein in costs.

The reforms would require all new employees at the Mexican Social Security Institute to begin financing their own pensions, though the specifics would be left to contract negotiations. Mexico’s lower house, the Chamber of Deputies, approved the measure last week. All that’s needed now is the approval of President Vicente Fox, who is expected to act quickly.

Union members say that the measure would be an attack on the labor rights of all Mexicans and the first step toward dismantling the nation’s main public healthcare system. Enraged government medical workers have marched in the streets, blockaded federal buildings and threatened a nationwide strike.

Fox in turn has characterized the conflict as a choice between using tax money to support social programs that benefit of millions of Mexicans or for maintaining perks for civil servants.

“Sooner or later, this country has to confront these decisions,” Fox said. “There is no way that this government ... can meet the demands [for] higher education, the battle against poverty or the push for economic growth if these reforms aren’t approved.”

Fox’s conservative National Action Party was joined by opposition legislators in the rare face-off with employees of the mammoth social security agency, whose union has won lucrative benefits for its 370,000 active members and 120,000 retirees over the years.

The agency’s employees on average retire at age 53 with 130% of their salaries, with taxpayers footing most of the bill. In contrast, private-sector workers fund the lion’s share of their own pensions and must wait until age 65 to draw checks that average 42% of their final pay.

About half of all Mexican workers toil in the underground economy and have no retirement or health benefits.

Leaders of the union, known as the National Union of Social Security Workers, or SNTSS, say that poor management of Mexico’s social system, not employee pensions, is to blame for the agency’s fiscal woes. They vow to challenge the constitutionality of the legislation in the courts. The union is also threatening disruptive street demonstrations, targeted work stoppages and even a nationwide strike that would cripple the public healthcare system.

“The government is going to see a hardening of the workers of SNTSS and other unions,” said the union’s leader, Roberto Vega Galina. “We’re going to strike” if the legislation isn’t overturned.

Mexico hasn’t seen a major public sector strike for decades. The Institutional Revolutionary Party, or PRI, that ruled the nation for 71 years traditionally kept government unions happy by doling out generous salaries and benefits in exchange for political support.

That cozy relationship ended with the ascension of Fox and his National Action Party in 2000. But observers note that a number of PRI legislators also supported the reforms largely because the social security agency’s finances have deteriorated to the point where jeopardizing the healthcare of millions of voters is riskier than alienating a few hundred thousand union members.

Patients in the nation’s main public healthcare system already face medicine shortages and lengthy delays for treatment, problems that will only worsen if more resources aren’t found to treat Mexico’s burgeoning elderly population.

“We’re headed toward a crisis,” said Genaro Borrego, a PRI senator who voted in favor of the reforms. “The demographic transformation we’re seeing is raising the cost of healthcare dramatically.”

Overhauling government pension programs has taken on new urgency throughout Latin America, where weak economies and poor tax collection have created unsustainable financial burdens.

Ironically, the region has been a leader in private-sector pension reform. For example, Mexico in 1997 began requiring all workers in private industry to contribute 11.5% of their salaries toward their retirement years, much of it into privately managed 401(k)-style accounts.

Latin American governments have been slower to force such changes on politically powerful civil-service unions. But pensions experts say aging populations and crumbling finances are forcing politicians in Mexico to deal with what they’ve long avoided.

“Public pension reform is an absolute necessity in much of Latin America,” said Olivia S. Mitchell, an employee benefits expert at the University of Pennsylvania’s Wharton School. “The private sector has already taken the bitter pill. Asking the public sector to share more of the burden seems not only reasonable, but inevitable.”

Although Mexico has taken the first steps in that direction, some say the pension reforms passed Thursday won’t be sufficient to repair the troubled finances of the social security system, largely because they apply only to future workers.

“It’s not enough,” said Mexico City economist Rogelio Ramirez de la O. “We’re moving sideways.”