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Pension funds face crisis of low returns


Vicente Corta

Historically low interest rates are a boon for borrowers. Yet for Mexico's pension fund administrators they have become a headache. Four years or so ago, Mexico's pension fund managers had merely to invest in government bonds, sit back and watch real returns of 13% roll in. Those were the days of interest rates at 25%.

Today, as in the 1990s, 89% of pension funds in Mexico are invested in government bonds. But with economic stability now a central part of president Vicente Fox's policy agenda, interest rates have reached 30-year lows of around 7%. As a result, real returns on the bonds are now 3%. This dramatic fall has prompted Consar, the pension fund regulatory body, to bring in a new investment regime, the first major change since the country's pension fund system was privatized in 1997. The system has assets of $23 billion.

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