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.
