Collapse of the Pension Fund

AIM Zagreb, 11 May, 1999

Croatian retirement system is heading towards complete collapse. The pensioners who have gained their right to a pension by having worked in other republics of former Yugoslavia and who nowadays live in Croatia and are its citizens, still have not received their pensions for the month of February, while those who have gained this right by having worked in Croatia, have just received the sum for March. Pensions for April have not been paid yet, which means that one-month pension has been stollen from them. If it had happened for the first time, this might not have been sensational. But, according to pensioners' statistics, this is the forty first pension that the young Croatian state owes to its pensioners!

The total amount that according to certain analyses the state owes to pensioners is today about 40 billion kunas, or more than 10 billion German marks. Indeed, even if the government wished to pay what it owes, it would not have the money to do it. It would not be able to pay even one tenth of the debt, and if it manages to pay all the regular pensions next month, it will be a real miracle. Some Croatian economists who are not exactly believed to be pessimists claim that it will be able to pay pensions in the next two months only with the help of inflation, in other words, with unsecured money issue. There is only one worse forecast than this one, and this is that the mass of issued kunas will become greater and greater - because in Croatia not only pensions are paid with delay - in fact Croatia is facing super inflation. This means, pensioners might receive their pensions in time in the coming months, but with them they will be able to buy less than now when with delay they receive their 1,107 kunas, or about 285 German marks on the average. This opinion, indeed, is not only exclusively reserved for pessimistic economists: the number of ordinary citizens who are convinced that the whole economic system is facing collapse very soon is increasing.

What brought about such a large debt of the state to its pensioners? In principle, the answer is very simple: the reason for that is that the ruling party, whenever it needed money, reached out most frequently where it was the easiest - for the money of those who were the least willing and capable to rebel, to pensioners. How was the debt created? The technics applied in robbing the pension fund was very diversified. A part of the mentioned debt has been created because the so-called privileged incomes (of former military officers, retired soldiers and officers in the latest war, assembly deputies, state officials) instead from the funds of the state budget as prescribed by law, were paid for four and a half long years from the money collected for regular pensions. Although the number of these pensioners is comparatively small (there are 25 thousand of them altogether) their pensions are a few times bigger than the ordinary, average ones, so in the mentioned period of time the debt of the state to ordinary pensioners reached seven and a half billion kunas (slightly less than two billion German marks). Indeed, it is unable to return this debt, so every month it gives back one hundred kunas each with six per cent increase of the pension, which practically means that ultimately the debt will be returned in full only to a few fortunate ones who will live for a few more decades. To the mentioned seven and a half billion kunas, one should add the amount of interest which is not at all small.

The other enormous debt has been piling up for five years already. The former retirement law prescribed that pensions could amount to 85 per cent of the income during the years of service. The government of Nikica Valentic, however, did not apply these provisions, in fact they are not applied to this day, but as part of the "stabilization" plan, the pensions went up at a much slower rate than even the increase of living expenses. Nowadays, the pensions amount to only 43 per cent of the income during the years of active service. Last year the Constitutional Court reached a decision that gave joy to pensioners but shocked not only the government but also the whole ruling party. The Constitutional Court decided that the pension fund was obliged to implement provisions of the law on the height of pensions. In other words, it ruled that in the past six years the pensions had been low contrary to law, or to put it even more simply: that the fund was bound to pay pensioners the balance which they had been deprived of for such a long time without any legal foundation.

This decision caused great consternation of the prime minister Zlatko Matesa who rejected responsibility of the government for this debt, declaring quite flankly that the state neither had nor would have that kind of money. Having realised that there was no chance for them to get the money, pensioners appealed to all the courts of lower instance in Croatia (administrative, municipal and district courts), but the judiciary simply obstructed the proceedings. The amount of money for pensions and the debt to the pensioners - there are more than one million of them - is a top priority political issue which the outcome of forthcoming elections could depend on. That is the reason why the ruling party wishes to keep this unsolvable problem under the carpet until after the elections, and then throw this hot potato into the lap of the new government.

The third sort of the debt to the pension fund has been created due to bad business operation of the fund, in other words due to extremely dubious profitability of the trade with the part of shares of Croatian economy the fund had been given in its portfolio and which - for the benefit of pensioners - the fund should have managed prudently. This part of the shares was in the past eight or nine years the most frequent and easiest target of extremely dubious tycoon operations of privatization and then plunder of the vital branches of Croatian economy. The pension fund, as one of the key "logistic" foundations of the plunder of Croatian economy by the ruling party, has always been the place of greatest interest of the ruling party, and a man of confidence has always been at its head. This confidence, unfortunately, was used for digging into the cashbox of the fund for the benefit of the party, and since even the pension fund is not bottomless, the result has become visible. Nobody has offered to assume responsibility for such a situation of the pension bureau (until recently the fund). Its former director, Damir Zoric was on the contrary awarded with the post of the ambassador of Croatia in B&H, and the new director Dunja Vidosevic is left with the ungratifying task of financial rehabilitation.

This task is extremely difficult and it is not connected only with the reform of the whole pension system, but with full reform of the collapsed Croatian economy. Some parametres from this field have already become incredible. Nowadays in Croatia there are 1,282,576 employed persons, but as many as 866,347 pensioners. The number of pensioners has increased in the past nine years by 250 thousand people, or by 41.03 per cent. This means that there is one pensioner per 1.48 employee. In the same period, according to statements of trade union leaders of pensioners, the number of active insured persons has decreased by 400,395, or 23.79 per cent. On the other hand, majority of enterprises either do not pay at all or pay insufficient contributions into the pension fund. At this moment, the debt of legal persons to the pension bureau is 2,184,312,344 kunas (over half a billion German marks), and it increases every day. Figures on business operation of the bureau also illustrate the difficulties of this institution. In the past four years, losses of the pension fund amount to 1.3 billion kunas, and this year's deficit is on the average 150 to 200 million kunas a month.

In the report submitted by Ms. Vidosevic to members of the management board of the Bureau it is stated that the deficit for January, February and March this year amounts to 354 million kunas, and the same trend continues in April. How difficult the situation is is seen from the data that at the moment the Bureau owes a billion and hundred and eighty million kunas. This debt refers to loans granted by banks and the state budget. Before the next pensions are paid it is necessary to secure money and pay the debts to banks...

"If Croatian Bureau for retirement insurance cannot collect more than 30 per cent of what legal persons owe it it means that neither the state nor the economy function, and in such a case the government should either resign or immediately schedule elections", was the message of the presidency of the trade union of pensioners of Croatia on 6 May to the government. The diagnosis is correct - neither the state not the economy operate. But for a change of affairs to occur, a more serious remedy will be needed than resignation of the government. The entire Croatian economy should profoundly be changed.

BORIS RASETA (AIM)