Profits from the Mayan Train, liquidations and land sales: the uncertain funding of López Obrador's pension reform

The financing of Andrés Manuel López Obrador's pension reform is in limbo. As part of an ambitious package of constitutional reforms, the president of Mexico seeks to guarantee that workers can retire with 100% of their salary or with a maximum pension of 16,777 pesos. To achieve this goal, he has proposed the creation of a seed fund of 64,619 million pesos. However, this stock, which will have to grow year after year, will be funded with resources that are not concurrent and are still uncertain. For example, the money from the trusts of the Judicial Branch, still in litigation, or the liquidations of the autonomous bodies, an initiative of the Executive that still depends on the endorsement of Congress and the profits of the newly created military parastatals.

The seed fund that the federal government will create on May 1 plans to be funded 75% by the resources of the Institute to Return Looted to the People, from the resources of the liquidation of Financiera Rural —an organization that disappeared in 2023—, the sale of lands of the Fonatur as well as the debts of agencies and entities with the Federal Public Administration, the liquidation of the trusts of the Judicial Branch, once the litigation that is still being resolved is concluded and the resources of the workers deposited in the Afores and that they have not been claimed.

The remaining 25% will come from the remainder of the net profits of the state companies that now manage the Secretariats of National Defense (Sedena) and the Navy (Semar) and that in turn manage airports, the Marías Islands or the Mayan Train. In addition, the Executive plans to nourish this fund with investments from the Pension Fund and with donations and contributions from any natural or legal person. According to President López Obrador, an actuarial evaluation of this seed fund will be carried out every eight years.

Experts warn that the new fund will be insufficient to cover Mexico's long-term retirement needs and that it does not have a sustainable base, which is why, if the reform is approved, it will reduce the fiscal margin of the Government in power. Citibanamex specialists recently calculated that raising workers' pensions would cost up to 430,000 million pesos. On the other hand, the Mexican Institute for Competitiveness (Imco) indicated that the pension reform will entail an annual, permanent and growing fiscal cost. “If approved, a reform of this nature will make the Mexican State responsible for a liability that will increase as the population aged 65 and over increases in the country, which is expected to double in the next 26 years. from 11.4 million in 2024 to 24.9 million in 2050,” the organization highlighted.

The professor emeritus of the Tec de Monterrey, Raymundo Tenorio, warns about the zero certainty of some sources of financing for this fund, for example, the sale of Fonatur land that was originally going to be used in tourism projects, as well as the 15,000 million pesos from the trusts of the Judicial Branch, which are still in litigation and which the Government had first promised would be allocated to the victims of the hurricane Otis, In Acapulco. “If they don't have money to rescue Pemex, even less do they have money for this,” he says.

“The fiscal space today in Mexico is so limited that you cannot think of having money for this seed capital and to sustain its operation, there is no way, so it would have to be with budgetary resources as it has been now, taking money away from health issues. , education or environment”, Tenorio ditches. Only in 2024 will the expenditure budget disburse out of the total 9 billion pesos, about 2 billion pesos to pensions.

The expert insists that, coupled with the lack of technical certainty of the proposal, the president will encounter opposition from the opposition, which is why he does not see it as viable for the pension reform to advance; however, he emphasizes that López Obrador has launched this order for electoral purposes, which will serve to support the official candidate, Claudia Sheinbaum.

The current retirement scheme in Mexico, is a product of the 1997 reform and was promoted by PRI President Ernesto Zedillo, operates under an individual capitalization scheme, where employees obtain a pension according to the worker's own savings plus the contribution of the Government and employer. To be entitled to an old-age pension from the IMSS, workers assigned to the '97 law must meet two requirements: have a minimum of 1,250 weeks of contributions or be at least 65 years old. These resources are managed and invested by the Retirement Fund Administrators (Afores). Under this modality, a worker retires with just a little more than 40% of his salary and it is for this reason that the current Government has launched this ambitious and attractive reform in the eyes of citizens: raising the rate of return on salary to 100% through this government funding.

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