When the devil is right
Perhaps everybody has seen the commercial of the new pension reform with participation of the devil and the angel. In that commercial the angel is trying to persuade the public that the more you invest in the pension fund the more the state will invest on your behalf.
But in fact the state doesn’t provide anything. Yes, the budget anticipates approximately 20 billion AMD for the pension reform but this money is not coming from the state treasury. Let is explain why. And so the employees of the country born in or after 1974 are offered to choose one of the required funds – saving, stable or balanced. In the stable income fund 60% of the portfolio will be invested from the AMD state obligations. In the rest of the options the state investment will be 50%. In order to make it more understandable let us bring an example. Let us assume that free people are participating in the concrete fund – Poghos, Petros and Martiros. They all pay the state fund 30,000 AMD (each 10 thousand AMD).
Another 30,000 will “kindly” be provided by the state. The fund accumulates 60 thousand. And this manager of funds directs exactly half of the fund to the state budget. So the 30,000 given by the state goes back to the state. This is not a secret but a fixed rule. At some occasion the minister of finances mentioned that the state pension funds will offer a 20-billion demand for state obligations. It is clear that no funds will be taken out from the state treasury. And the state budget won’t go through additional expenses.
Now let’s go on. As a result of the above mentioned, it turns out that the state merely borrows this 30,000. And it is obliged to return this money with interests. In a word, the state borrows money from us. In this case the state benefits by borrowing the money at the lowest rates. Now let’s pay attention to what’s going to happen in the market of state funds. During the last months their interest rates have lowered. The officials of this sector don’t even hide that they have initiated this policy. It means if the constitutional court doesn’t satisfy the demands of the public to cancel this initiative then in parallel to “filling” the pension funds the interest rates of state obligations will essentially lower.
The state treasury doesn’t benefit from this. Who benefits then? The banks. Because 10-15% of the state portfolio has been invested in Armenia’s trade banks as a long-term saving. This is what exactly the Armenian banks need. It means that at our expense saves big funds in the banks for a long time. This is another “legend.” The reason is that the effect of crediting of banks is less than the multiplicative effect of current expenses. Let us explain. If the same Petros, Poghos and Martiros give this 30,000 AMD not to the pension fund and instead make purchases and spend it to boost the economy, then the country will benefit more from that. This mechanism could have been more or less justified if the salaries were high in Armenia.
But in Armenia the average salary for a teacher is 50-60 thousand AMD. So these teachers not only cannot afford any savings but they also need some extra money from the side to survive. And under these circumstances the state is not trying to increase the consumption level of these people but is also trying to take away the tiny bit that is left for their survival. But in general this mandatory system is a real joke for an Armenian workman.
It is crazy to persuade a person that the state cares more of a citizen than the citizen himself/herself. And it is even crazier to try to persuade him that the state can do a better job saving their funds. And it is a total absurd to try to persuade a person knowing that the society has a total distrust towards the government. And these conditions you start to think that in the mentioned commercial the devil was more right than the angel and perhaps it would be better if the two switched roles.
By Babken Tunyan
