By Nelson Bocanegra
BOGOTA (Reuters) - Colombia's private pension funds association said on Thursday a reform proposed by the leftist government of President Gustavo Petro is unsustainable and would have a significant impact on capital markets.
The bill, one of a raft of reforms proposed by the government, would strengthen the state pensions administrator in an effort to give benefits to more people.
It would require private funds to send about 80% of the money they manage, equivalent to about $3.8 billion annually, to state pension fund Colpensiones, said Santiago Montenegro, head of the Asofondos association.
That would leave private funds with much less to invest in public debt, corporate bonds and stocks on the local and international markets, Montenegro said.
"This is important flow that will stop being provided on the capital market, to financing of companies, to debt refinancing," he told journalists.
Private funds administer obligatory pension savings of some 346 trillion pesos, about $72.4 billion, equivalent to nearly 30% of Colombia's gross domestic product.
Private funds had 116.2 trillion pesos invested in TES bonds at the end of February, a fourth of the investment in internal public debt.
Though the reform, which would enshrine a range of contribution regimes depending on income, would boost financing in the short term for the government to pay pensions, it will not finance needs in the medium and long-term, Montenegro said.
"The devil is in the details," he said. "In the medium-term we would need to pay more taxes and reduce benefits, like raising the retirement age, increase contributions or reduce the sum of pensions."
Petro's coalition has a majority in Congress, though a health reform proposal has caused friction with some legislative allies and led to the exit of a minister.
"The proposal will not bring a long-term solution to the current problems of coverage, equity and sustainability in the system," the ANIF thinktank said in a report, saying it could more than double pension obligations to some 249% of Gross Domestic Product.