Calls for U.S. to Remain Neutral on Armenia’s Pension Debate; Support Exploration of Alternative Models of Reform
WASHINGTON—The Armenian National Committee of America is engaged in ongoing discussions with the State Department and the U.S. Agency for International Development regarding Armenian American concerns about the negative impact of high-profile U.S. advocacy for increasingly controversial pension reforms in Armenia.
“As Armenian Americans, core stakeholders in both the U.S.-Armenia relationship and the enduring friendship of the American and Armenian peoples, we are seriously concerned that our government’s vocal support for this controversial pension reform is needlessly straining America’s strong standing in Armenia,” said Aram Hamparian, ANCA Executive Director. “We look forward to continuing our engagement and remain hopeful that common-sense, middle-ground solutions will emerge – in terms of both the substance of policy and the democratic process of their implementation – that will work for all the people of Armenia and serve to further strengthen American-Armenian ties.”
The ANCA, in meeting with U.S. officials last week, shared a detailed analysis, prepared by economist Dr. Ara Khanjian of Ventura College, regarding the shortcomings of the reform program being publicly endorsed by the U.S. Embassy and USAID. Dr. Khanjian, who took part in the meeting, provided a point-by-point review of the serious shortcomings of the extreme model being backed by the United States. While all stakeholders agree that the old pension system needs reform, there is broad-based opposition in Armenia and among Armenians worldwide to a 100% privatization of pensions. U.S. support for this extreme model, embraced by only five other countries, comes despite President Obama’s ardent opposition to even relatively modest efforts, under President George W. Bush, to privatize a small percentage of Social Security. A majority of the Senate and House also opposed any privatization of Social Security in the U.S.
The level of U.S. advocacy for this pension reform model is widely viewed, in Armenia and the U.S., as potentially harming America’s standing in Armenia. The U.S. position on this measure is also seen as running counter to a number of values prioritized by USAID in its FY 2013-2017 Country Development Cooperation Strategy for Armenia, including transparency, consensus-based policy-making, and responsive and accountable governance. Read the USAID strategy document.
While there is broad consensus that the old pension system was deeply flawed and needed replacement, only very narrow support exists for the extreme model adopted by Armenia’s ruling party.
As a remedy, the ANCA is proposing that the U.S. government should refrain from further public endorsements of this controversial reform and, instead, publicly support an open exploration – among political leaders and the general public – of alternate reform models – including U.S. Social Security, hybrid systems, and the total privatization model.
Background: The pension system adopted by Armenia’s ruling party and endorsed by the U.S. government is an extreme model, in which 100% of pension or social security taxes are allocated to individual private pension accounts. Internationally, there just five other countries with such an extreme pension model: Chile, El Salvador, Mexico, Kazakhstan and Nigeria, and the global trend, since the 2008 economic crisis, has been for governments to move decisively away from privatization. The analysis prepared by Dr. Khanjian covered a broad array of problems inherent in extreme pension reforms – many shared by the IMF and the World Bank – including financial market and labor market risk, adverse impact upon women, budgetary considerations, increased fees, and lack of sufficient regulatory oversight. Within Armenia, he noted, no significant political leader outside the ruling party supported this reform, while the previous president and every opposition party represented in Parliament opposes its implementation.