Saving for retirement: under threat

The monetary policies that practically all the central banks of the world implemented during 2020 and 2021 to finance growing fiscal deficits as a mechanism to face the shock generated by the covid pandemic finally materialized in a higher rate of inflation. This monetary phenomenon (inflation is always everywhere and at all times an essentially monetary phenomenon, although there are real shocks that affect it, such as the Russian invasion of Ukraine) has had an impact on almost the entire world in such a way that it is in levels not recorded in the last two decades.

The response of the central banks themselves, belated indeed, has been to implement restrictive monetary policies throughout this year with the aim of reducing the inflation rate towards the levels considered to be their long-term objective (2% in almost all developed countries, 3% in Mexico). Thus, the United States Federal Reserve increased its funding interest rate from 0.25% at the beginning of the year to its current level of 3%, the European Central Bank from 0 to 1.25%, the Canadian Central Bank from 0.5 to 3.25% and the from the United Kingdom from 0.25 to 2.25%; Banco de México, for its part, has increased it from the level of 5.5% at which it closed last year to its current level of 9.25 percent.

Naturally, when central banks increase their funding rate, they have an upward impact on almost all interest rates. For example, in Mexico, the rate of return on 28-day CETES went from 5.49% on December 30, 2021 to 8.90% in the auction of last October 11, those of 91 days from 5.52 to 9.89%, those of 182 days from 6.30 to 10.32% and those of 364 days from 6.95 to 10.64 percent. This increase in interest rates is consequently reflected in a lower bond price, which reduces the value of the portfolios containing these financial instruments.

On the other hand, restrictive monetary policies, by influencing aggregate demand, can generate recessive pressures in the economies. This tends to be reflected in the value of other financial assets such as shares of companies listed on stock markets. Thus, so far this year in the United States the Dow Jones has fallen 18.5% and the S&P500 by 25%, in the United Kingdom the FSTE100 by 7.3%, in Japan the Nikkei by 6.3% and in Mexico the BMV by 14.7 percent. hundred. This is also reflected in a lower value of the portfolios that contain these assets.

Thus, what has been observed in practically the whole world is that the increase in interest rates and the fall in the price of shares have had repercussions in a loss of savings portfolios (erroneously called investment portfolios); This is what has happened to the value of assets managed by Afores in individual retirement savings accounts owned by workers. According to CONSAR, so far this year there has been a loss of 473,000 million pesos; This is only an accounting loss and is not realized unless the assets are sold. It is to be expected, because this has been the case in the past, that the losses will disappear when, as the rate of inflation is reduced, interest rates begin to fall and stock markets recover. The registered disability is only countable and, very importantly, transitory.

We already know that President López does not understand the functioning of the financial system or the reason for the disability registered in individual retirement accounts, but he stated that he will evaluate the retirement savings system. This should set off all the alarms in the office of the Secretary of the Treasury as well as in each of the Mexican homes because there is a danger that the savings that workers have for their retirement will disappear.

At the end of September 2022, the balance in the individual accounts of the workers amounted to 4.86 billion pesos (more than half of the public budget for the next year). It is a lot of money and there is always the temptation for a populist government like this to appropriate it, even more so when it has already run out of resources to finance its pharaonic works, “strengthen” Pemex and the CFE and continue paying for its social/electoral programs. If the president seizes those resources (for example with a government Afore instead of private ones) the workers will lose their wealth and their pensions; Be assured.

Twitter: @econoclasta