WASHINGTON, D.C., April 16, 1998—The International
Finance Corporation is investing up to US$1 million AFP Prevision, a private
company set up to manage mandatory and voluntary pension funds in El Salvador’s
new social security system.
El Salvador is the first country in Central America to emulate the successful
Chilean model of a defined contribution private pension system. Reform
of the former state-run “pay-as-you-go” social security system is part
of the El Salvadoran government’s agenda for further market-based reforms
focused on a new pension system by mid-1998.
The Chilean model has proved that a private pension system can improve
old age security as well as capital market and private sector development.
By adding to private savings, these systems can help finance growing
levels of domestic investment in a country. IFC’s involvement in
the Salvadoran pension industry, initiated through this project, would
help with other capital market development initiatives in El Salvador and
the rest of Central America.
The private pension market is estimated at nearly 500,000 people, of which
some 400,000 are expected to convert to the new system. The pension
funds in El Salvador are expected, over time, to stimulate demand for and
issuance of equity and long-term fixed income instruments and add nearly
US$2 billion to the local capital markets in the next ten years.
The sponsors of AFP Prevision are Banco Bilbao Vizcaya (BBV) of Spain;
Pacific Financial Group (Pacific); a Central American financial group;
an affiliate of Banco Salvadoreño (El Salvador’s third largest bank);
and the IFC.
IFC, part of the World Bank Group, fosters growth in the developing world
and in emerging economies by financing private sector investments, mobilizing
capital in the international financial markets, and providing technical
assistance and advice to governments and businesses.