AFP Futuro in talks with govt to give up FCC control

- Monday, May 15, 2006

AFP Futuro in talks with govt to give up FCC control

Bolivian pension fund manager AFP Futuro is in talks with the government to give up its management control in the collective capitalization fund FCC, AFP Futuro chairman Gonzalo Bedoya told BNamericas.

On May 1, Bolivia's President Evo Morales issued a decree nationalizing the country's hydrocarbons resources.

The decree said state oil company YPFB will take a controlling interest in local oil firms Chaco and Andina and local transport company Transredes.

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Previously, private investors held a 50% stake in the companies, with the remaining shares held by the FCC, which is managed by pension funds companies.

The FCC is used to pay the benefit called bono solidario (Bonosol), a fixed payment to those over 65 years of age on December 31, 1995. The main objectives of the Bonosol are to provide pension coverage for those outside the formal pension system and to distribute the profits of the capitalization program.

The new decree establishes the state can transfer the stake from the FCC to YPFB.

"We are holding meetings with government officials in order to comply with the decree," Bedoya said. "There is no doubt that at the end we will transfer those shares because the government has said it will do all the necessary formalities to make the transfer succeed," the executive added.

The payment of Bonosol will apparently remain unaffected as Bolivia's government guarantees it will provide the funds to pay the benefit, Bedoya said.

CAPITALIZATION PROGRAM

Bolivia engaged in significant privatization in the mid-1990s under the first administration of President Gonzalo Sánchez de Lozada (1993-97).

"The government employed traditional privatization in some instances, but mainly relied on capitalization as a mechanism for the transfer of state-owned firms," a report from US think tank Center for Global Development (CGD) said.

Under capitalization, the state transfers shares equivalent to 50% of the firm to the investor with the winning bid. It also yields about 45% to private pension fund administrators representing the ordinary citizens, according to CGD.

The capitalization program was a way to transfer property rights and the control of the state enterprises to private actors without transferring ownership per se, according to a report the Inter-American Development Bank (IDB).

The Bolivian AFPs manage funds coming from the individual capitalization fund FCI, which consists of individual monthly contributions by employees and from the FCC, made up of revenues and funds coming from capitalized companies and corporations.

Bolivia's old pension system was intervened after thousands of cases of alleged fraud were detected in the system and a new private pension system was founded in 1997. It comprises pension fund managers AFP Futuro, belonging to Swiss group Zurich and AFP Previsión, owned by Spanish group BBVA (NYSE: BBV).

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