Report on the Actual Situation of

the Pension Funds in Venezuela

Madrid, April 12, 2000

Context

I.- Demographics and Macroeconomic Indicators

II.- Reforms to the Pension System

III.- Concerned Groups

IV.- Mercantil Financial Services (MSF)

I.- Demographics and

Macroeconomic Indicators

Source: O.C.E.I., 12/31/99

I.- Demographics and Macroeconomic Indicators

Population 23,769,087

Population 23,769,087

Active Population10,206,259

Active Population10,206,259

Informal Sector 4,701,360Informal Sector 4,701,360

Formal Sector 4,125,587Formal Sector 4,125,587

Unemployment 1,379,312Unemployment 1,379,312

Private 68%Private 68%

Macroeconomic 1999

GNP(% Var) (7,2)Inflation 20,0%Loan Rate 27,8%Saving Rate 15,7%Monthly Salary (Average) 330 US$

Govt. 32%Govt. 32%

Men64%Men64%

Women36%

Women36%

Average Age26 yrs.

Average Age26 yrs.

II.- Reforms to the Pension System

II.- Social Security

Social Security Distribution System (Mandatory)

Social Security Distribution System (Mandatory)

CONAVIDwellings

3%

CONAVIDwellings

3%

I.V.S.S.17%

I.V.S.S.17%

INCRETRecreation

INCRETRecreation

INCEJob Training

2%

INCEJob Training

2%

HealthHealth

PensionsPensions

Members6,945,267

Paying Members2,118,008

Source: IVSS 12/31/99

Forced

UnemploymentForced

Unemployment

10%

15%

20%

25%

30%

35%

40%

0

10

20

30

40

50

1974

1999

% Paying Members vs. Occupied Population

Number of Paying Members per Each Retired

Source: IVSS, Ministry of Labor and Our Calculations

The different variables, such as

demography and a less dynamic and informal market,

have coincided and created a major

financial load on the actual paying

members, generating an unviable and

unsustainable system in time.

1974 1999

II.- Social Security

0

400

800

1.200

1.600

Retirees of I.V.S.S. and Public

Administration

Population Over 60 yrs. old

964,000 persons without pensions

Sources: IVSS, OCEI, Ministry of Labor, Our Research

The volatility and the increase on Current

Expenditure as well as the financing of other

Social Security Benefits has caused a constant reduction on Pensions and lower coverages.

Nu

mb

er o

f P

erso

ns

0

500

1.000

1.500

2.000

2.500

Monthy Pensions in US$(Constant 1984)

19711999

US

$

629,000

II.- Social Security

Net Government Expenditure as % of the GNPIVSS -Public Administration - Non Paying Members

0

4

8

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

% o

f G

NP

II.- Social Security

Payments to Retirees, Non Paying MembersPayments to Retirees, Public Administration

Payments to Retirees, IVSS

0 5 10 15 20 25 0 5 10 15 20 25

0 5 10 15 20 25

2000 2010

2020

80+70-7960-6950-5940-4930-3920-2910-19

0-9

80+70-7960-6950-5940-4930-3920-2910-19

0-9

80+70-7960-6950-5940-4930-3920-2910-19

0-9

Today we have a unique opportunity to come-up with “The Reform” due to the fact that the

population pyramid is turning up side down. It will be more difficult

to reform in the future.

Today we have a unique opportunity to come-up with “The Reform” due to the fact that the

population pyramid is turning up side down. It will be more difficult

to reform in the future.

II.-Unique Opportunity

Age Age

Age% %

%

December 1997

October 1998

October 1999

December 1999

June 2000

• Approval of the Integral Social Security Organic Law.

• Approval of the Pension Law Sub-System. To be enforced on Oct. 1999. (affiliation)

• By way of a Special Power Law, President Chávez postponed to the year 2001 the enforcement of the Law.

• On Article 86 the New National Constitution provides for the creation of a Social Security Organic Law enacted by the National Assembly.

• National Assembly (Congreso Nacional) to be installed.

– Study and analysis of the Social Security Law within the 60 most priority laws.

II.- Social SecurityBackground

II.- Present Situation

Estimated date “Scenario 1”

July - AugustInternational bidfor the SEREISSI and Superintendency

AugustSuperintendencyStart-up

JulyLaw approval

November-DecemberAuthorization Prerequisitesfor AFP

JanuaryStartingAffiliation

MarchStarting dues

2000 2001

OctuberInternational bidfor the SEREISSI and Superintendency

MayStartingAffiliation

NovemberSuperintendencyStart-up

September-OctoberLaw approval

2000 2001

II.- Present Situation

Estimated date “Scenario 2”

MarchAuthorization Prerequisitesfor AFP

AugustStarting dues

MandatoryContribution

Mixed SystemShared

GovernmentAdministration

PrivateAdministration

Accounts

Contibution between 2% - 3%Contibution between 2% - 3% Contibution between 11% - 12%Contibution between 11% - 12%

IntergenerationalSolidarity

In order to complement the Minimal Pension

Capitalization

Individual

In order to pay: Retirement Pension

Disability Survivorship

II.- Characteristics of the Proposed SystemSystems

III.- Concerned Groups

III.- Concerned Groups

Mercantil Mercantil (Vzla)

Provincial Grupo BBV-Argentaria (Spain) -Polar (Vzla)

Banco Venezuela Grupo Santander (Spain)

Citibank Citibank (USA) - Banco Caracas (Vzla)

Banco Unión Grupo Unión (Vzla)

Banesco Banesco (Vzla)

Nuevo Mundo Grupo Pacific (Chile)

Adriática de Seguros Grupo Allianz (Germany)

Aporta AFP Aporta (Chile) - Seguros La Previsora (Vzla)

Seguros Sud América (1) Grupo Zurich

(1) Only as insurance provider to the pension system.

IV.- Mercantil

Financial Services M.S.F.

M S F

Main Main Investment Investment Bank in the Bank in the Country.Country.

CommercebankMerinvestSeguros

Mercantil

Banco Mercantil

Inversora Maracima

Storage Co.Storage Co.ServibienServibienMentrasaMentrasa

Universal BankAgencies Miami, New York and Curacao.Pioneer and Leader in Trust Services,Leader in Low Income Housing Law Loans298 Agencies

Early on Early on 1998, 49.9% 1998, 49.9% of the of the Insurance Insurance Company Company was sold to was sold to ÆtnaÆtna

IV.- Mercantil Financial Services

Banco Mercantil Colombia

Banco Mercantil

Switzerland

First Latin American Bank to obtain permit as a Commercial Bank in Switzerland. Mercantil has been present in Zurich , Switzerland for 12 years.

U.S.Financial Institution. Specialized in Retail Banking, Mortgages and International Trade.

Financial Institution specialized in International Trade, mainly bilateral between the two countries.

New YorkCiudadde

México

Lima

Venezuela

Sao Paulo

Miami

Zurich

Manaos

Sao Paulo

Londres

Curaçao

Bogota

IV.- Mercantil Financial Services

Contenido

Thank you