Throughout a person's life, a large portion is dedicated to work in order to generate sufficient income for a decent standard of living. A significant portion of that income is then allocated to finance retirement , that is, to create a source of income for the passive stage of life.

Currently in Argentina, only the pay-as-you-go pension system is used. This means that current workers contribute funds to cover their pensions. However, until 2008, the country had a dual system: pay-as -you-go and capitalization . The funds generated up to that year were transferred to a fund administered by ANSES (National Social Security Administration).

This report will address the history, composition, and operation of the Sustainability Guarantee Fund , a government agency whose purpose is to manage a large portion of pension funds. The aim of this work is to explain why the fund was created, its characteristics, evolution, and size, and the various dilemmas involved in its use in light of the current situation, and especially after the signing of the agreement between Argentina and the IMF in June of this year.

The FGS administration aims to achieve direct and indirect returns, generated by investments and the application of the fund's resources; specifically, the mission of the FGS is to preserve the value of the fund's assets, seeking profitability from its resources.

 

Historical evolution

In the first year of operation, in 2007, the FGS did not have contributions from the nationalized AFJP system. Therefore, at the end of November 2008, the funds totaled $17.847 million pesos. This situation changes abruptly on December 5, 2008 when the AFJP funds, which account for approximately $80.209 million, are integrated.

The evolution of the fund's valuation can be seen in Table 1. As can be observed, the fund's price increases year after year in nominal terms. Note that the fund's capitalization operates through two channels: accumulated returns and capital contributions from the Treasury.

In order to obtain a more accurate diagnosis of the management of the FGS, the last two columns of the table show - firstly - the interannual variation of the nominal value of the fund net of the capital contributions made by the Treasury. For its part, the last column shows the profitability of the fund net of capital contributions and discounting the influence of generalized price variation.

According to the above, 2011 is the year with the worst performance on record, with a capital contribution of $6.075 million (the maximum in the series) and a drop in real valuation of 14,1% year-on-year.

If the evolution of the fund's performance in real terms is taken into account , using December 2009 as the base year, that is, when the funds from the AFJPs are already integrated; until December 2017 (which is the last data available for a full year), the value of the FGS registers a real growth of 2,85% for the course of 8 years, excluding from the estimate any capital contribution exercised by the Treasury.

On the other hand, Table 2 shows the fund's composition in recent years. It reveals the FGS's strong presence in financing the National Public Sector ^. While the share of Government Bonds has decreased from 62,4% in December 2013 to 56,6% in March 2018, it still represents more than half of the FGS's value. In contrast to this decrease, equities reached approximately 20% of the fund by the end of 2017. Finally, it is worth noting the presence of a new item that began operating in 2016: loans to the provinces.

The FGS is a reserve fund managed by ANSES with a specific purpose. It comprises various financial assets such as government bonds, shares of publicly traded companies, fixed-term deposits, corporate bonds, mutual funds, financial trusts, mortgage-backed securities, and loans to provinces already benefiting from the SIPA (Argentine Integrated Pension System).

As for investments , they are distributed across various productive projects, generally related to the financing of housing construction or investment in energy sources and natural resources.

The current state of the country's economic situation is influenced by the agreement with the International Monetary Fund (IMF), which established a disbursement of 50.000 billion dollars over 3 years, conditioned by certain clauses relating to compliance with pre-established goals that enable the gradual disbursement of available funds, with quarterly reviews to be evaluated from June 2018 onwards.

Importance

Those who manage third-party funds have the objective and responsibility to use them efficiently, that is, not to spend them on consumption but on profitable investments in order to avoid depleting their capital. In pension systems that constantly accumulate income, this premise is fundamental, and the discussion regarding the actions of the administrators in charge of managing workers' contributions (whether the state itself or private institutions) is not insignificant.

A well-made investment in productive and profitable projects begins a virtuous circle in the domestic economy and can produce greater economic growth and, as a consequence, greater employment. Of course, and as mentioned above, the impact of the effect depends not only on its direction, but also on the magnitude of resources that are made available for these purposes.

The following report attempts to explain everything related to the operation of the Sustainability Guarantee Fund and a brief analysis of how its profitability has evolved since its creation in 2007, since ultimately our future retirement will depend largely on it.

1 – It should be noted that, under the capitalization regime, the AFJPs were also required by law to keep in existence a significant part of their portfolio in Public Securities.