The cancellation of the historical debt of the State with the Nicaraguan Institute of Social Security (INSS) —which should happen at some point in the first half of 2023— will not extinguish the constitutional obligation to guarantee social security to citizens, so there is no He doubts that the government will have to continue transferring substantial resources to keep it afloat. The question is how, and on what basis.
In 2014, after several years of negotiations and disagreements, the Administration of Daniel Ortega set the size of the “historic debt” with the INSS at 500 million dollars, and decided to pay it in 50 annual installments of ten million dollars each, to be canceled in 2063, but the future came sooner.
The General Budget of the Republic for 2022, shows the state commitment to transfer to the INSS, 1086.9 million córdobas in 2022, equivalent to thirty million dollarsof installments 47, 48 and 49, with which installment 50 should be paid sometime next year, while the need for INSS to receive more resources grows to balance your accounts.
Fee 47 (about 358.6 million córdobas at the time), was paid in the second quarter of this year, as shown by the Budget Execution Report for the first half of 2022prepared and published by the Ministry of Finance.
Two experts who spoke anonymously with CONFIDENTIAL detailed some of the initiatives that the administration of the Institute —or the Ortega government— can implement to oxygenate the finances of Social Security, based on an incontrovertible truth: although the INSS is a kind of ‘private club’ that only has obligations with its affiliates, on the other hand, the State is obliged to provide social security to citizens.
Article 61 of the Political Constitution of Nicaragua states that “the State guarantees Nicaraguans the right to social security for their comprehensive protection against the social contingencies of life and work,” while article 105 says that “services of… social security, are indeclinable duties of the State, which is obliged to provide them without exclusions, to improve and expand them”.
Once again the parametric reforms…
“The Constitution says that the Government has to cover the deficits of Social Security when it no longer has a way to solve it. Therefore, for a long time multilateral financial organizations they told him ‘if you don’t want to have to pay, find a way to resolve it,’” said an expert who knows the recommendations that the International Monetary Fund and the World Bank did to Nicaragua for many years.
“The Government will have to pay any deficit that the INSS has, so that it can fulfill its obligations to the citizenry,” he reiterated.
This expert said that he and other connoisseurs of the subject envision three policy decisions that could ‘loosen the rope’ that is now suffocating Social Security finances, mentioning in particular the absolutely unpopular proposal to make parametric reforms, based on the thesis of that “when there is a deficit: either the State pays, or employers and workers pay”.
The unilateral imposition of parametric reforms in April 2018accelerated a popular civic explosion of Nicaraguan society against the regime, which remains in power thanks to the force of arms, and the continuous commission of electoral fraud and farce.
The expert’s proposal is based on determining how much money the INSS needs to guarantee its financial stability, and based on that, decide by what percentage labor and employer contributions will have to be increased, which includes that the youngest affiliates have to retire until turn 65, and not at 60, as is the case today.
But an economist who regularly monitors the Institute’s financial situation differs from the expert’s proposal, pointing out that “what the [reformas] parameters is to leave you with less social security coverage. The ‘parametry’ is to make short-term adjustmentsNot long-term.”
Instead, he points out: for the INSS to be able to satisfy the social security demand of the country’s inhabitants, the Government needs to create the bases for the economy to strengthen the institution, in order to respond to that demand. Otherwise, “problems will continue,” he reiterated.
Return to a solution from the past
Another of the expert’s proposals is to change to a system of “individual accounts,” a plan that was already adopted —and discarded— during the term of President Enrique Bolaños. “It was a law copied from Chile —which other countries also copied— and contemplated that 10% of each worker’s salary be quoted, when it should be between 15% and 20% to be profitable, and at this time that has already been exceeded. range,” he said.
Thinking that there are more people contributing more, the expert says that the Government must create favorable conditions for nationals and foreigners to invest in the country, and envisions that, given this impossibility, they could force private companies to hire “two percent , five percent, and up to an additional ten percent, of the personnel they have on the payroll, so as not to increase contributions, which would generate a new flow of money”, he assured.
The economist explains that, after the 50th installment of the historical debt is paid, the State will have to continue transferring funds to the entity, either directly, through bonds or by granting loans. “Everywhere, the state leverages its social security system, because everyone operates with a deficit, except the Scandinavians.”
“The situation of the INSS depends on the growth of economic activity generated by the country in the long term, but if it continues to be based on an informal economy, social security falls. We must make the economy grow by reducing informality, and raising the quality of employment, to make the middle class grow”, he graphed.
Reiterating that our economy does not have the capacity to promote sustained growth that generates quality wages and jobs, which is why many people seek better horizons in other countries, he recalled that the remittances they send “those who leave, generate consumption and taxes, but not new income to the INSS. The population will continue to age without the INSS being able to stabilize their financial situation in such a way that there will always be a deficit, even if few are entitled to a pension”.
