The Limits of Neoliberal Policy Feedback: Private Pension Fund Reforms in Peru (2014–2021)

A growing literature in comparative Latin American Politics highlights how policy feedback effects help explain the resilience of neoliberal reforms in the region (Arce, 2001; Ewig and Kay, 2011; Madariaga, 2016; Vergara and Encinas, 2016; Bril Mascharenas and Maillet, 2019; Dorlach and Starke, 2021). A policy feedback approach points to how the selection and design of certain policies have effects on subsequent political processes; or to put it more simply, on the way in which “policies make politics” (Pierson, 1993: 596–97). The “first wave” of policy feedback literature focused on how welfare reforms created or benefited organizations and interest groups that in the eighties were critical to resisting neoliberal efforts to retrench the state. In turn, the neoliberal policy feedback literature highlights how similar feedback mechanisms account for the resilience of neoliberal policies and explores how these effects differ from those of social democratic policies. Specifically, in this second literature, more prominence is placed on the role played by private actors as crucial stakeholders interested in policy continuity (Ewig and Kay, 2011, 71–72; Dorlach and Starke, 2021). Because of these effects, neoliberal policies are resilient to reform even in the face of considerable public criticism and dissatisfaction (Bril Mascharenas and Maillet, 2019; Dorlach and Starke, 2021). The resilience of these unpopular policies calls into question the democratic character of societies when political actors fail to represent these criticisms and demands.

The neoliberal policy feedback literature emphasizes private actors and their growing power as the key explanation of policy continuity, which dialogues well with the closely connected literature on business actors and their influence in contemporary Latin America. Nonetheless, given their focus on continuity, the former works do little to explore other instances in which neoliberal feedback cannot preclude change; for instance, in some countries, such as Bolivia and Argentina, governments achieved the reversal of neoliberal policies (Ortiz et al., 2018). In these cases, the main reason behind the reversal lies in strong political parties and/or populist leaders, critical of neoliberal continuity, that surmounted the resistance of those who supported continuity. Successful reversion of neoliberal reforms in Bolivia or Argentina is associated with the power of MAS and Peronismo, respectively.

This paper presents an instance in which private actors favored by neoliberal reforms were incapable of resisting change. Interestingly, there was no strong political party (or populist leader) pushing for reform. Neoliberal pension policies adopted in Peru in the nineties were reformed from 2016 to 2021 in ways that affected the core interests of pension fund associations (AFPs), private enterprises created to administer these funds. A law adopted in 2016 opened the door for individual pensioners to withdraw up to 95.5 percent of their accumulated savings at the point of retirement. Ensuing reforms approved by Congress in 2020 and 2021 during the COVID-19 pandemic further weakened AFPs’ control over pension funds (Olivera, 2021). Although the private pension system remains in place, politicians implemented reforms that were sympathetic to the demands of pension owners against the interests of powerful private actors. But these measures are onerous for AFPs and contradict the basic principles of a pension system; that is, to address present needs, individuals are jeopardizing their own future economic security. This enormous trade-off leaves the well-being of many individuals in the hands of future governments and their willingness (or lack thereof) to help at times of need.

To explain this outcome, this article advances two arguments. First, it explores a critical difference between neoliberal policy feedback and the social-democratic feedback literature: the division of interests between private providers (in this case, AFPS) and the beneficiaries of neoliberal policies (in this case, current and future pensioners). As we will see, positive feedback mechanisms certainly account for the power of AFPs in Peru, as well as the resilience of the private pension system, to this day. Nonetheless, future pensioners ultimately became an interest group (negative feedback) that was rather critical of the system and sympathetic to changes that would give them more control over their individual funds. This divergence of interests between private service providers and consumers made AFPs vulnerable; indeed, the attack on the system came from within, with beneficiaries supporting politicians’ proposals to authorize fund withdrawals. Private providers and citizens may be united against proposals to nationalize private individual funds, but this alliance does not hold when it comes to the free use of individual funds in which citizens can opt out if permitted to do so. The divide between providers and citizens is less acute in the case of social democratic policies for which the state is the primary service provider, and interest groups created by the policies’ positive feedback align with the defense of the provision system. By looking at this divergence between providers and consumers, the article explores the conditions under which neoliberal policies are more vulnerable to reform than has been highlighted by the literature.

An additional factor that contributed to the extent and the rapid approval of the reforms affecting AFPs in Peru is the weakness of political parties in the country. The weakness of Peru's political actors played a role in two ways: (i) parties are more vulnerable to backlashes over unpopular issues in the public sphere and (ii) there were no strong programmatic right-wing parties capable of channeling and protecting AFP interests. When these issues were discussed publicly in Congress, the influence of the private actors was not sufficient for them to resist public demands for change, and politicians voted almost unanimously for reforms—including right-wing parties supportive of the neoliberal model.

In Chile, AFPs have also been subject to severe criticism and public contestation, but linkages between parties and business actors meant they were ultimately able to limit reform for several years (Ewig and Kay, 2011; Bril Mascharenas and Maillet, 2019). Nonetheless, later, during the COVID-19 pandemic, social pressure and the need to respond to beneficiaries’ demands led to congressional approval of substantial withdrawals of up to 10 percent of pension funds, showing that even in the presence of strong political linkages, public criticism under economic stress can break this resistance (Superintendencia de Pensiones, 2021).

The article proceeds as follows. First, it discusses the main features of first-wave policy feedback mechanisms, initially conceived for welfare expansive policies, with neoliberal policy feedback mechanisms centered on private actors. This section then presents the literature about how private actors exercise influence in contemporary Latin America. The following section explores pension reform in Peru and its legacies: the reforms in the nineties, evidence of feedback effects, the 2016 counter-reform, and the cash withdrawals approved during the 2020–2021 stage of the COVID-19 pandemic. The last section highlights why AFP interests ultimately failed to prevent quite abrupt changes in the private pension system, highlighting the relevance of the divide between providers (AFPs) and beneficiaries (current and future pensioners). The article concludes with some ideas about the lessons this case provides for the neoliberal policy feedback literature and its implications for the continuity of the neoliberal model in Peru.

Policy Feedback, Business Influence, and Public Debate

One of the main goals of the neoliberal reforms adopted in Peru and Latin America was to displace the state in public service provision based on its purported inefficiency and politicization (Weyland, 2002, 2006: 22–24). The market was supposed to be more efficient in providing quality services for more citizens while preventing the kind of excessive public subsidies that had been common in the past (Navia and Velasco, 2003). Market reforms liberalized and deregulated areas such as education, health, the pension system, transport, and communications, among others. The state traditionally held a monopoly in the provision of these services (Weyland, 2002; Maillet, 2015). However, thirty years on from the adoption of these reforms, the promise of the market as an efficient provider of public services has proven unduly optimistic. Many problems previously associated with state provision (corruption, disproportionate influence of interest groups, ineffective provision) remained under the new structure. For example, in the case we discuss, the private pension system failed to expand social security, despite initial expectations (Mesa-Lago, 2008; Olivera, 2016; ILO, 2018: 12–20). In addition, new problems emerged, such as inefficient state regulation in the face of powerful private providers.

Even if neoliberal reforms are criticized for not delivering their original promises, they have resisted counter-reformist demands in certain democratic countries, including some that were part of the left turn in Latin America such as Chile. Politicians promised counter-reforms during their political campaigns but failed to implement them. The resilience of these neoliberal reforms can be evaluated through the lens of policy feedback. As mentioned, this literature reasserts the status of policies as independent variables capable of producing political developments (Skocpol, 1992: 58). The policy feedback perspective belongs to the historical institutionalist approach, emphasizing the role played by institutions and policies adopted during a specific period as generators of permissive or restrictive conditions for future political developments, including, in some cases, reproduction mechanisms that precipitate difficult-to-break trajectories (Weir, 2007: 72).

Policies make politics through different mechanisms. First, they provide resources and incentives for the emergence, strengthening, or weakening of interest groups that become defenders (positive feedback) or opponents (negative feedback) of the policy, pushing for its continuation or its dismantling (Skocpol, 1992: 59; Pierson, 1993: 599–603; O’Neil, 2006; Dorlach and Starke, 2021). Second, they produce administrative reforms in the state structure, as specialized personnel and resources are required for policy implementation, conditioning the capacity of these areas to promote the new policies (Skocpol, 1992: 58–59). These policies also promote the emergence of bureaucratic lobbies that aim to expand them (Beland, 2010: 4). Third, policies have informational effects on elites. When the policies fail, these elites opt for new alternatives. In turn, when they are successful, the elites will aim to replicate them (policy learning) (Hall, 1993; Ewig and Kay, 2011; Dargent, 2015). Fourth, they impact political participation as policy beneficiaries develop a civic identity and collective interests that other groups do not possess (Campbell, 2005). These mechanisms can produce lock-in dynamics that launch a particular trajectory that is difficult to reverse in the future. In the words of Pierson (1993: 606, 608), “…policies provide incentives that encourage individuals to act in ways that lock in a particular path of policy development…[leading to] elaborate social and economic networks, greatly increasing the cost of adopting once-possible alternatives and inhibit exit from a currency policy path.” In other words, once a particular policy is adopted, it can produce a path dependence dynamic that makes future change and reform rather difficult (Bril-Mascarenhas and Post, 2015).

Feedback mechanisms are usually related to expansive welfare policies that provide benefits for citizens through state actions. In a groundbreaking study, Pierson (1994) analyzed how the pension and health systems in the United States and the United Kingdom produced enormous incentives and resources for beneficiaries to organize themselves into interest groups capable of pushing for the maintenance and expansion of these programs and their institutional arrangements. When neoliberal reforms sought to retrench the welfare state in the eighties, these interest groups were able to oppose the reforms, forcing the Reagan and Thatcher administrations to desist or use different strategies. Similarly, Skocpol (1992) argues that women's social security programs in the United States achieved continuity because, apart from structuring the activities of female interest groups, they transformed certain state areas, producing capacities that allowed the implementation of similar programs. These changes also opened up bureaucratic spaces for young female bureaucrats with an interest in deepening those policies in the future.

Until recently, less attention was paid to the feedback effects of non-expansive policies associated with the neoliberal state. Given their distinctive characteristics—in that private actors provide the services, and the state, for the most part, only has to regulate them—neoliberal policies produce feedback effects with their own particularities. In contrast to expansive welfare state policies in which the winners were broad groups of beneficiaries dependent on state provision, in the case of neoliberal policies, private business actors became the winners and the key actors (Arce, 2001; Ewig and Kay, 2011; Maillet, 2015). Moreover, bureaucratic agencies were no longer providers and thus became less relevant for policy continuity and reproduction. One aspect to consider in regard to business power is that in developing countries, given their weaknesses, the mission to regulate private actors under neoliberal policies is more challenging than in developed nations with professional and autonomous bureaucracies. Quite frequently, these states went from being inefficient providers under welfare policies to inefficient regulators of the neoliberal state, enhancing the power of private actors.

Neoliberal reforms also produce different social groups than welfare policies. Welfare policies group together citizens as beneficiaries of specific reforms with the state as their counterpoint. Neoliberal reforms often fragment public service beneficiaries by creating several groups and diminishing their capacity for collective action (Pierson, 1994; Kurtz, 2004; Ewig and Kay, 2011; Dorlach and Starke, 2021). Also, these reforms, given their private orientation, can negatively affect certain key interest groups advocating for expansive policy continuity—such as labor unions—thus contributing to the stability of unpopular policies by weakening opposition actors (Dorlach and Starke, 2021: 6–7).

In the case under analysis, though, an interest group that has been less discussed in the literature became crucial to explaining policy reversal: AFP customers, the supposed beneficiaries of neoliberal reforms who have distinct interests from those of the private providers. The present case points to a more general division in neoliberal policies. For certain issues, beneficiaries can constitute more effective supporters of change than the literature allows for. Some previous works have presented the gains of these actors in reacting against and resisting neoliberal policies, but most of the time they are portrayed as insufficient to balance the power of private actors and achieve reforms.

Bril Mascharenas and Maillet (2019) showed, when it came to protests against Chile's pension system, that beneficiaries were among the groups that demanded significant reforms to the system (Bril Mascharenas and Maillet, 2019). Similarly, Dorlach and Starke (2021) highlighted the importance of anti-privatization interest groups in demanding reversals of welfare state privatization. Focusing on neoliberal higher education reform, Disi (2018) noted how disenchanted graduates in Chile pushed for reforms that reduced the benefits and power of private actors in the university system. Similarly, dissatisfied customers of private health providers in Chile were among those who called for changes in the provision of health services (Ewig and Kay, 2011). In most of these works, as we will see, the forces demanding change are ultimately defeated by powerful private actors, created and reinforced by neoliberal reforms and their feedback effects (Disi, 2018, presented an exception to this pattern).

This emphasis on how private actors influence policy continuity links the neoliberal policy feedback literature with recent works on business power in the region. The literature on business power highlights two kinds of power that private actors can amass: structural and instrumental (Culpepper, 2011; Fairfield, 2015). Structural power is linked to the feedback effects mentioned above; it refers to the economic weight of private actors and how this makes their threat of capital flight (exit threat) plausible in the face of policies that affect their interests. The second type of power, the instrumental kind, refers to the resources and networks that give business actors privileged access to decision makers that can participate in the public debate to defend their interests. Both types of power give business actors considerable influence over political decisions (Fairfield, 2015), explaining why politicians are careful not to advance even popular reforms that go against these interests.

However, the business power literature also discusses instances in which this power is more vulnerable. Culpepper (2011) made a crucial distinction between private and public forums of debate. He showed how political parties change their position about the regulation of business interests when an issue enters the public debate. While the issue is considered in more private forums, political parties can align themselves with special interests. However, once it becomes politicized and stands to damage the party's position in elections, party preferences change. Using this framework, Urteaga (2017) demonstrated how business power (in this case supporters of GMO crops) in Peru was more effective in influencing policies when the issues were debated within ministries or in parliamentary committees. Once the issues went public, weak politicians revoked their previous support of business interests by quickly aligning with public opinion.

As mentioned, the literature on neoliberal policy feedback has focused more on resilience than change, and the key factor behind this outcome is private actors created or reinforced by neoliberal reforms. Two studies have combined this field of study with that on private power in the region to analyze the resilience of neoliberal pension reforms in Chile. Ewig and Kay (2011) explored the legacies of neoliberal policies in Chile's pension and health systems. They discussed how the legacies of privatization, especially the enhancement of private providers and the elite's way of framing policy alternatives, enormously limited the capacity of the center-left government to reform these services. Finally, Bril Mascharenas and Maillet (2019) explained the resilience of a highly unpopular private pension system by exploring the structural power of AFPs and their instrumental strategies for exerting influence on the Chilean political class, left and right. Each of these works focused on policy continuity, highlighting the power of private actors to defend their interests even when the public and unsatisfied beneficiaries criticized neoliberal policies. Political parties, particularly center-left ones, ultimately did not align with their constituents’ demands for reform.

This policy feedback and business literature helps to highlight the relevance of the case in consideration and how it diverges from previous works: even though feedback mechanisms favored private providers in Peru's pension system, a reform that was inimical to AFPs’ interests was eventually approved by Congress in 2016 with near-unanimous support. Later, during the COVID-19 crisis, additional reforms authorized cash withdrawals that further harmed the interests of AFPs (Olivera, 2021). The unpopularity of the AFPs’ stance ultimately dealt a severe blow to their interests even though in this case there were no strong political parties or unions opposing neoliberal policies or promoting reform. The rest of the paper shows how the divergence of interests between providers and beneficiaries was instrumental for this change, contributing to enhance public pressure against AFPs. Also, the weakness of political parties deepened and hastened the adoption of these reforms.

Pension Reform in Peru: Antecedents, Trajectory, and Counter-Reform

In the late eighties, the collapse of the Peruvian Institute of Social Security (Instituto Peruano de Seguridad Social, IPSS) became a symbol of the crisis in the country: hyperinflation had eroded pension values, the administrative apparatus of IPSS was too inefficient to administer the system, the shortage of formal workers created a large deficit for the state, which had to cover the cost of pensions, and within five years, the incumbent government almost doubled the number of civil servants in the system, among other serious problems (Arce, 2001: 93–95; Rojas, 2014: 56–69). Elites and the general public came to see the pension system as totemic of the predatory state and the irresponsibility of political parties. When in 1990, a new government launched an ambitious neoliberal reform program in response to the crisis, reformers pointed to the costs and inefficiency associated with the public pension system to justify the inclusion of private providers. Two laws advanced this reform: one enacted in November 1991 (Legislative Decree 724) and another more comprehensive one in November 1992 (Legislative Decree 25897). The private pension system began operations in June 1993.

The reform of the pension system closely followed the Chilean experience, whereby the public system was fully privatized and AFPs were in charge of administering pensions. However, there was a significant difference: in Peru, the public pension system remained in place. Following the reform, two systems coexisted: a public system under the guidance of a new institution (Oficina Nacional de Pensiones, ONP) and a private system in which five AFPs competed to administer the individual accounts of future pensioners. Members of the private system contribute a small fee to the public system, and those passing from the public to the private system receive a small recognition bond for their contributions. However, for the most part, the two systems are independent of one another. Moreover, these reforms changed the state's bureaucratic landscape. An AFP regulator, the Superintendencia de Administradoras de Fondos de Pensiones (SAFP), was set up in 1995 (Later, in 2002, the financial system regulator, the Superintendencia de Banca y Seguros, absorbed SAFP, creating the Superintendencia de Banca, Seguros y AFP).

The reform was rushed through in 1992–93 mainly for pragmatic as well as ideological reasons, given the urgent need to reduce the public deficit (Rojas, 2014: 70–79; Interview with Morón, 2019). The neoliberal ideology of the technocratic reform team certainly favored market solutions. In this regard, the reformers saw the Chilean system as a successful alternative. However, their primary motivation was to cut down on state expenditure. Consequently, the reform was designed not as a comprehensive policy to prevent future system problems but as a quick solution to a mounting deficit and to create new sources of private investment. As we will see, this characteristic helps to explain specific problems that erupted later when the first pensioners under this system began to retire.

This hybrid system created a socioeconomic divide among formal workers. The public system remained solidarity-based. Intended to cut public expenditure, it put limits on pensions linked to total contributions. Nowadays, pensions vary from the equivalent of approximately US$ 130–US$250. Furthermore, until very recently, retirees had to contribute for at least twenty years to be entitled to a pension (in 2020, a reform reduced this period to ten years). The private system collects a fixed amount from workers’ paychecks each month and allows contributors to increase their funds if they wish to do so. As a result, lower-income workers in the formal sector are usually in the public system (around 10% of the total labor force), while higher-income formal workers tend to be in an AFP (around 10% of the labor force). The remaining formal workers (approximately 10% of the labor force) belong to special retirement systems (teachers, servicepersons). Most of the labor force is informal (70%).

Policy feedback mechanisms served during these first years to enhance the power of AFPs. These organizations became major financial actors in the Peruvian economy, quickly expanding their power. The number of AFPs grew to eight in 1993 but then gradually fell to four, where it has stood for several years now. Still, the AFPs’ structural power grew during those years, and they now represent around 22 percent of Peru's GDP. ¹ Second, the number of workers with individual funds in AFPs rose over the period. In the early years, around 626,000 ² workers were enrolled in AFPs, and by December 2019, there were 7.44 million contributors (however, data from 2018 shows that only 43% were frequent payers; the remainder were individuals that held accounts but did not make regular or significant deposits into them) ³ . As mentioned, these actors have different conditions than workers in the public system—in particular, individual accounts in their name. On the other hand, the limits in the public system render it a nonviable option for better-paid workers aiming for higher pensions. Consequently, contributors have become a kind of support group for the continuity of the private system, opposing radical changes such as those witnessed in Argentina and Bolivia. A general lack of confidence in the public pension public system, exacerbated by the negative experiences of the eighties, makes it highly unlikely that this group of workers will accept a state provider. As discussed later, a recent poll (Ipsos, 2021) clearly attests to a lack of public support for a state-led pension system. In contrast, according to Brill and Maillet (2019: 2), in Chile, 90 percent of citizens believed pensions should be in the hands of the state. Nonetheless, as we will see in the next section, it would be wrong to assume from this distrust of the public system that the interests of AFPs and contributors are aligned.

AFPs have also developed instrumental power for accessing the Executive. They do so through official appointments (revolving door) and by lobbying for their interests (Ortiz de Zevallos et al., 1999; Arce, 2001). These actors organized at a very early stage under the Asociación de Administradoras de Fondos de Pensiones (AAFP), which they used as a vehicle to influence the state and condition policy. The first two presidents of this association were both former prime ministers and one was a former economic minister (out of eight presidents in twenty-five years). Both structural and instrumental power sources allow AFPs to deepen their policy interests, as occurred during the nineties, and block reform efforts that may affect them. Weak unions and unsatisfied retirees from the private system were no match for these more structured and influential interests.

Arce (2001) used a policy feedback framework to highlight how the reform enhanced the power of AFPs in Peru. These actors were later capable of deepening the reform process in favor of their interests. In 1995, AFPs lobbied Congress to secure a law reform with more significant incentives for workers to pass from the public to the private system. The following year another reform made it mandatory for employers to register workers with AFPs in the absence of a formal request to sign up to the public system. Arce (2001: 93) put it as follows: “This asymmetrical distribution of gains and losses sparked strong organized support, which led collective actors to exert pressure on the government to deepen the reform process. With abundant resources and privileged access to the policymaking process, the Peruvian political system was stacked in favor of business interests.”

Nonetheless, starting in the early 2000s, a series of problems emerged for the AFPs. The press began to report on workers who, having contributed to their funds for many years, were not allowed to access these funds even if they were unemployed or seriously ill. Moreover, the first pensioners under the system, who had only contributed for ten to fifteen years and received low-value recognition bonds when they passed from the public system to the private, received small pensions. As discussed later, the original policy design did not take into account this type of contingencies.

From 2001 to 2012, a series of reforms paid more attention to the citizens’ concerns about the private pension system: in particular, the absence of a minimum pension in the private system, users’ inability to access part of their pension funds before retirement age in case of economic need or illness, and the size of the fees that AFPs charged for administering the retirement funds. Reforms enacted in 2001 (Law 27617) provided for (a) a minimum pension (not lower than the minimum one in the public system) for those workers who had contributed for twenty years but did not reach this amount and (b) a temporary (until 2005) early retirement scheme for workers who could already guarantee a pension, were fifty-five years old, and could certify twelve months of unemployment. Other reforms over the following years (Law 28991; 29426) extended this temporary early retirement scheme (as we will see, in 2019 it became permanent) (Rojas, 2014: 89–97). In 2009 (Law 29351), another reform reduced the number of fees per year that users had to pay AFPs for the administration of their pension funds. By law, Peru's formal employees receive fourteen salary payments a year. Under the previous regulations AFPs made deductions from each of these payments, but since the reform deductions are made from only twelve. In 2012 (DL 29903), further reforms sought to exercise more control over the profits that AFPs earned for managing pension funds. In general, all of these changes afforded more benefits to AFP customers, but none of them counts as a significant reform of the system.

In 2011, Ollanta Humala was elected president. Humala had previously run in 2006 on a platform that was highly critical of Peru's established neoliberal model, but was defeated in the second round of the election. In 2011 he succeeded where he had previously failed, albeit based on a less critical discourse and a commitment to respect the fundamentals of the model. In government he moved rightward, and his presidency is best described as representing continuity with the previous administrations since the nineties. Nonetheless, on his congressional lists, several congresspersons shared a more critical view of certain neoliberal policies. Among them was Jaime Delgado, a lawyer and consumer rights activists who made the AFP issue one of his main interests. According to Delgado, by that time AFP clients were quite unsatisfied with the system and they did not see MEF or the SBS as protecting their interests (Interview with Delgado, 2022)

Starting in 2013, two events had the effect of maintaining public interest in AFPs, leading to the politicization of these issues. In August, quite by surprise, the government declared the legal obligation of independent workers to start paying pension fees (Law 29903). This abrupt reform increased from 10 to 16 percent of the income tax threshold of this group of workers, sparking a backlash. The government suspended the tax until September 2014, when it was supposed to become mandatory again. When the deadline for independent workers approached, fear of criticism again prompted the government to retreat again and declare null the provision (Law 30237). More importantly, in October 2014, an independent report was produced by researchers at the Lima-based Universidad del Pacífico (Cruz Saco et al., 2014), an institution usually supportive of market reforms and with a reputation for technical legitimacy, was critical of the system's failings. The main point of contention was low pensions and the amount of fees that contributors had to pay to AFPs, even if the results were not positive for the former. The report was debated extensively in the press and in public forums, with other economists and AFP members questioning the results. All this debate increased public awareness of the system's purported shortcomings and problems.

This marked a clear divide between AFPs and contributors. Dissatisfaction can lead pension-holders to support reforms that allow them to access their funds even if such reforms are inimical to the goal of a pension system: to assure a social protection safety net in old age. Feedback effects have given rise to a group with different interests to those of AFPs depending on the issue under consideration: they may support the system as a whole if their funds are under threat from nationalization, and at the same time, seek more control over their private funds against the interests of private providers. In all likelihood, the end of the commodity boom—in which the economy grew at rates of 6–9 percent every year from 2005 to 2014 (with the exception of 2009)—contributed to bolstering these demands in years in which the economy only grew at modest rates of 2–4 percent.

In the following months, news stories about the limitations of AFPs tended to follow a standard narrative: their profits were too high and were amassed even if contributors had losses in their investments, pensions were low, and customers lacked control over their funds. According to one poll, 55 percent of the population thought that AFPs did not invest funds for the benefit of their contributors. Moreover, 57 percent of workers in the private pension system felt that the pension they stood to receive upon retirement was inadequate. Interestingly, 54 percent of workers enrolled in an AFP thought the services provided by these institutions were adequate (GFK, August 24–27, 2015).

As a result of these events, in 2015, Congress debated possible changes to the system. Until then, thirty-four reform bills had been duly presented by congresspersons for consideration. The public debate prompted the Economic Committee to unify several of these reform proposals and present them on the floor of Congress. One measure proposed was to allow contributors to withdraw up to 95.5 percent of their accumulated funds once they reached retirement age. The bill was quickly passed during a session in December 2015 by a unanimous vote (sixty-six votes). Many congresspersons were absent (the Peruvian Congress has 130 seats). During the debates, legislators overwhelmingly supported the reform. The public records show that many readily dismissed criticism of several technical problems in the proposals, which threatened old-age security. Most dismissed the risk of individuals misusing their pension funds by asserting that users were “mature grown-ups." Moreover, as mentioned, many were quite critical of AFPs and what they perceived as an interest in profits at the expense of workers and pensioners.

AFPs tried to stop the bill in Congress, and when they failed to do so, they lobbied the Executive to exercise its constitutional prerogative to send the bill back to Congress for reconsideration. The Executive, particularly the Ministry of Economics and Finance (MEF), opposed the reform due to its implications for the already weak pension system (Interview with Segura, 2019). Eventually, President Humala refused to sign the bill and sent it back to Congress. When it became clear that Congress would insist on their decision and approve the law, the AAFP made a strong public stand; they published an announcement in newspapers denouncing the legislature for taking a decision that would “impact the economies of our families” and warned that approving the law could “lead to the end of pension systems in Peru.” Congress insisted on their decision and the bill was approved in April 2016 (Law 30425) with a larger majority: eighty-four votes in favor and only two against ⁴ During the debate, congresspersons again strongly criticized AFPs’ rhetoric about the common good, accusing them of caring about their interests and not those of pensioners. ⁵ Not only did the decision reduce AFPs’ control over these funds from retirement age, but the regulation was used in combination with the earlier retirement legislation to allow individuals to withdraw their funds several years before retirement. This loophole was closed in 2019, but the 95.5 percent reform remained in place. According to the SBS, until February 2019, 236,456 workers had used this provision to withdraw their funds from AFPs. These withdrawals amount to 12 percent of the funds administered by AFPs. ⁶

Nevertheless, the problems for AFPs were starting to materialize. Even though Peru's next president, Pedro Pablo Kuczynski (2016–2018) was a right-wing politician sympathetic to the market model and the dominant force in Congress was a rightist party guided by ex-president Alberto Fujimori's daughter, Keiko, there were more bills in Congress seeking to increase workers’ control over their private funds. But these demands become even more acute later, once Kuczynski had resigned from the presidency amid a corruption scandal and one of his vice presidents, Martin Vizcarra (2018–2020), had succeeded him. In response to growing clashes between the Executive and Congress, President Vizcarra exercised his constitutional prerogative to dissolve Congress in September 2019. A new Congress was elected in January 2020 to sit until the end of the constitutional term in July 2021. However, this Congress was rather fragmented, and the previously dominant Fujimorismo party only held a small vote share. It was at this time that the COVID-19 pandemic brought a sense of urgency to congresspersons, who began to see AFP funds as a way to address citizens’ demands for economic alleviation. With only a year and a half of the congressional term remaining until the 2021 election, the topic became one of great interest to representatives.

In consequence, the COVID-19 pandemic opened up a new opportunity to advance these demands. The pandemic hit Peru severely in both health and economic terms. The economic dimension of the crisis led congresspersons to propose new bills aimed at allowing citizens to access their pension funds. Thus, the legislators continued targeting private pensions as an easy source of cash. From March 2020 to May 2021, Congress and the Executive adopted five reforms that allowed withdrawals from individual AFP accounts (Olivera, 2021: 9–10). The Executive adopted two decrees that authorized the withdrawal of small amounts, in general aiming not to threaten the sustainability of the private pension system. Congress, on the other hand, sided with popular demands and sought higher withdrawals. The three laws approved by Congress (No. 31017 of April 2020, No. 31068 of November 2020, and No. 31192 of May 2021) authorized withdrawals of up to four tax units (unidades impositivas tributaries, UIT; in 2020, one UIT was approximately 1,150 US$) for a limited time frame.

All these laws received near-unanimous votes. Law No. 31017 had 105 votes in favor and four against. The second law had 101 votes in favor, one against, and twenty abstentions. That same day Congress narrowly rejected a bill that looked to permit the complete withdrawal of individual funds (by 59 against, 53 in favor, and two abstentions). If approved, this bill would have certainly done away with the AFP system. Lastly, Congress approved Law 31192 (by eighty five in favor, six against, and three abstentions), which, on top of granting an additional withdrawal, allowed citizens over forty years of age and with no contributions in the last five years to close their accounts. The Executive deemed the bill unconstitutional and sent it back to Congress. In the event, Congress approved the law (by 109 in favor, 0 against, and three abstentions) but adopted some changes in line with the Executive's criticisms. In particular, the legislature erased the provision that would have allowed citizens over the age of forty years to close their accounts.

Together, these changes had an immense impact on the system. All of them received negative feedback from AFPs and the Executive's technocratic economic areas, such as the Ministry of the Economy and the Central Bank. The president of the AAFP summarized the impact on the system as follows: "I believe they put the pension system in a critical condition, particularly the private system. […] It is evident that Congress seeks, through this indirect approval or withdrawals, to nullify the possibility of having a viable pension system in the country."

It is important to note that Congress's interests were more focused on responding to citizens’ demands than on finding a broader solution to the pension system in Peru. Moreover, these defeats do not negate the enduring power of AFP interests, especially when they align with those of contributors. Both these aspects became evident when, in May 2021, Congress created a special committee to advance a proposal to reform Peru's pension system (Comisión para la Reforma Integral del Sistema Previsional Peruano). The resultant proposal sought to unify the pension system under a single public provider. Although it maintained individual accounts, there was a shared solidarity fund. AFPs (and other financial institutions) would only manage individual funds that were not part of this solidarity fund. The system required high public investment to start up and be sustainable, which sparked criticism from the government. Representatives of private pensioners also criticized the reform, arguing that private funds were again being put under state control.

The message stressed by AFPs during an intense media campaign at the time was that the state would decide on future investments. The chairwoman of the reform committee, Carmen Omonte, acknowledged how this campaign swayed her congressional—even those legislators who had previously supported the reform (interview with Omonte, 2021). In the end, the proposal did not attract strong support within Congress and was not even put to the vote. In sum, congresspersons and citizens mobilized under the banner of achieving more withdrawals, and not comprehensive reforms of the system. Indeed, the “alliance” broke down when the issue under consideration was the reform of the system as a whole. In this arena, the AFPs maintained their influence.

Interestingly, in an opinion survey (IPSOS) conducted in January 2021, more than 80 percent of the population disagreed with the notion of the state becoming the country's only pension system administrator, as proposed by the reform. Although the poll was not administered to customers in the private system, the numbers point to a general view of private managers as more efficient than their public counterparts. This result also suggests that neoliberal policy feedback is more successful in building a community of interests between providers and customers with a focus on keeping the system private. Nonetheless, as discussed in the following section, no such community of interests exists with regard to the unrestricted use of private funds, even if withdrawals are somewhat detrimental to the private pension system as a whole.

The Limits of Policy Feedback to Preclude Change

How did AFPs, powerful actors capable of protecting and advancing their interests since the nineties, became vulnerable to reform? The argument is twofold. First, and more importantly, for different reasons that include the original design of the system and AFPs’ resistance to change, dissatisfaction with the private system spread among current and future pensioners. Far from guaranteeing the system's stability, they became an interest group that pushed for the unconstrained use of their private funds. Feedback effects were negative, building a support group that favored cash withdrawals rather than the system. Second, there is a political side of the story that helps to explain the pace of these changes. Public support for reform—which saw private pensions become an issue of public contestation—prompted weak politicians to vote overwhelmingly for the 95.5 percent modification and subsequent laws that strengthened the ability to withdraw. In contrast to Chile in past decades, no Peruvian political parties were willing to protect AFPs in programmatic terms. Since the early 2000s, several of these issues led congresspersons to present reform bills, but only public debate and citizen awareness opened the door for reform.

Explaining Growing Dissatisfaction: Original Design and a Division of Interests in the Private Pension System

To understand the origin of several of the problems in the private pension system that precipitated growing dissatisfaction, one must understand the nature of Peru's proposed reforms. Many of these problems were predictable. The first retirees under the private system would only have contributed for a few years, with little recognition of their contributions to the public system, resulting in meager pensions. In addition, the conditions under which pensioners in need would be allowed to use their funds were not taken into account in these laws as initially formulated (Interview with Morón, 2019). It would have been possible to make provisions that guaranteed better pensions for the first wave of pensioners, allow withdrawals in emergency cases, or give better incentives for workers to contribute to their funds. Just as important, AFPs were perceived as “always winning,” even in cases where their customers did not achieve earnings. The commission for administering the funds was not dependent on results. In the following years, under better economic conditions and powerful AFPs exercising their influence, little was done to face these problems that eventually erupted in the 2010s.

Part of the reasons for these absences, as mentioned before, is that the system was not designed as a comprehensive public policy with mechanisms to assure its sustainability and prevent criticism in the future (Rojas, 2014). Initially, amid an economic crisis, the system's main goal was to cut the public deficit. The reform was conducted within the Ministry of Economics from 1990 to 1993 by a neoliberal team with the mandate to cut the state budget. Other actors, such as the International Monetary Fund and the World Bank, also pushed for private pension reform with similar intentions. Indeed, from 1977, the IMF co-signed several letters of intent with the Peruvian state to condition aid for the advance of pension reforms. A significant absence from these debates also helps explain the lack of attention to other issues. Workers’ unions had been weakened by the hyperinflation crisis of the late eighties, and Fujimori's regime further reduced their influence. When Fujimori launched a self-coup in 1992 and closed Congress, unions had even less leverage over policies. As a result, the law paid little attention to contributors’ rights.

As discussed, up to the early 2000s, AFPs had considerable leverage to promote their agenda. It is correct to conclude that policy made politics and interest groups advance their interests with little opposition during those years. Regulation of contributors’ rights shows this asymmetry. Although financial regulation seems quite sold in Peru, no similar regulatory framework was developed to protect contributors’ rights. For example, there were no provisions to share risks between AFPs and contributors in the case of losses, one of the issues more hotly contested by contributors.

Later, though, some reforms were approved to alleviate these issues. Congresspersons presented almost three dozen law proposals to reform the system. These public debates made it clear that it was pretty easy to set workers in the private system against the AFPs. Feedback effects may have created an interest group in the private system that would undoubtedly oppose changes that stand to nationalize their funds. However, these same workers were supporters of reforms giving them more control over their funds and were quick to attack AFPs for not caring about their interests.

According to Vicente Tuesta, former CEO of Profuturo AFP, social security problems in Peru are manifold. It is a mistake to focus them on AFPs that are very successful in administering their customers’ funds. Nonetheless, he recognizes that if the original policies had considered some provisions to protect pensioners (such as the possibility of giving them more control over their funds for personal emergencies), the criticisms against the system would have been less acute (Interview with Tuesta, 2019). Similarly, José Gallardo, a technocrat and specialist in regulation, highlights how regulation centered on contributors, sharing risks between AFP and them, for example, may have alleviated the queries of AFP customers (Interview with Gallardo, 2021). According to Congressman Delgado, this lack of response ended up increasing pressure for change among AFP customers in ways that ended up hurting AFPs’ interests and even putting at risk the private pension system in Peru (Interview with Delgado, 2022).

Interestingly, though, in Chile, wide-ranging criticism and strong public opinion against the private system did not lead to changes to the core characteristics of the system (Bril Mascharenas and Maillet, 2019). Indeed, the structural and instrumental power of the AFPs allowed them to resist reform quite successfully for several years. Only later, during the pandemic and amid a growing sense of urgency, did Congress approve withdrawals in line with the demands of citizens and social movements. Why, then, were AFPs in Peru more easily defeated once these issues were publicly discussed in Congress?

Congress and Weak Politicians

Peru's party system is one of the weakest in the region. High electoral volatility from election to election, low congressional reelection rates, high numbers of amateur politicians, and weak linkages with civil society and interest groups are some of the characteristics found in a political system dubbed a “democracy without parties” (Levitsky and Cameron, 1993; Zavaleta, 2014). One of the observed effects of this political weakness is the fear that Peruvian congresspersons have of policies and decisions opposed by the public. Even though social mobilization in Peru is comparatively weak, its effect on Congress is still quite significant. Certain Congress decisions were reversed or not put to the vote after public demonstrations over the past decade. Examples include a law that created an employment system for young workers, which was perceived as a reduction of social rights for the young (voted for almost unanimously and then rejected almost unanimously in a matter of days); the annulment of the appointment of six constitutional judges with excessively close ties to political parties; and the rejection of regulations to allow GMO sowing in the country (Urteaga, 2017), among others. Interestingly, when issues remain out of the public debate—in ministries or congress committees—the power and prevalence of interest groups are higher. However, politicians are acutely aware of public opinion when these debates do become public (Urteaga, 2017).

For a long time, Congress had no sense of urgency about discussing the bills that had accumulated in the Economic Committee over previous years. The topic had not been on the public agenda, even if minor reforms were implemented in response to criticism from AFP customers. What changed was the strong public criticism of the system, especially that prompted by the decision to tax independent workers and the Universidad del Pacífico report. Some leftist congresspersons echoed these criticisms, while others focused on consumer rights, bolstering the groups demanding change.

Politicians’ attitudes changed once the issue entered the public agenda and was discussed widely in newspapers and other media outlets. As mentioned, the Economic Committee was quick to prioritize three bills that reflected the breadth of those presented to Congress in the preceding years. During one of the debates in Congress, one of the congresspersons in favor of the reform argued that the public debate had prompted the committee to approve the measures quickly. From that congressperson's perspective, the 95.5 percent option was a response to a general lack of satisfaction with AFPs: “And so, because of the reaction that [the issue] has generated and which we have all witnessed in the media, it has widespread support among the population. And this support is not unwarranted, as, obviously, it is based on what is unfolding.” ⁷

The AFPs exerted their influence to prevent approval. As mentioned, they published an announcement in national media denouncing the risks that the reform posed. In addition, their spokespersons actively criticized the reform, and its supposed risks, in the media. Even former politicians from Chile were invited to share their positive views of AFPs. In the words of the congressman Jaime Delgado in congress record: “This, Mr President, enjoys widespread support among the population, except, obviously, for the AFPs, which this week have sent about five ex-ministers or three ex-ministers of the economy, of labor from Chile, to come and lobby here in Congress and also in the country in different forums. But the population widely backs this initiative, which I believe we should approve.”

Party weakness is also relevant, given the absence of programmatic political parties, especially right-wing ones, willing to protect the system and challenge public opinion. As Bril Mascharenas and Maillet (2019) discussed with reference to Chile, political party members from left and right had ties to AFPs. These organizations exercised Instrumental power through their party linkages to reject reform proposals or to weaken them considerably. In Peru, right-wing political parties, such as those representing Fujimorismo, were unwilling to adopt this programmatic defense. Fuerza Popular, Keiko Fujimori's party, is known for defending market policies and the political legacy of market reforms adopted by Alberto Fujimori. Nonetheless, the party opted to support the 2015 reform. The results of the 2016 election, in which Keiko Fujimori ran as a favorite, were too close to go against public opinion. According to one of the proponents of the AFP Law enacted during Alberto Fujimori's first government (1990–95), members sympathetic to market reforms knew the 95.5 percent withdrawal bill had serious problems but voted for it or abstained nonetheless. They were not capable of acting against a mobilized public opinion (Interview with Morris, 2019). This lack of instrumental linkages became even more emphatic due to the COVID-19 pandemic and the closure of the Peruvian Congress on September 30, 2019. During the pandemic, no political parties openly defended AFPs in Congress. As discussed above, all the Executive and the AFPs could do was water down egregious reform proposals that would have damaged the system permanently, but not stop the reforms.

To conclude, the absence of a community of interest between AFPs and their customers and the weakness of political parties made the system vulnerable to change. The near-unanimous votes for all these laws show that the issue was a sensitive one for congresspersons, willing to respond to AFP clients and public opinion. Consequently, the private pension system was left weaker than might have been expected. Currently, AFPs remain powerful actors in Peru, but their economic interests have been severely affected and future reform still seems quite likely.

Conclusion

This article has shown how even if policy feedback effects are relevant for understanding the resilience of neoliberal reforms, these effects have their limits. This is a case of a successful set of reforms that impacted the core interests of AFPs. Reform was possible due to the legacies of the private system, which created public dissatisfaction and a division between providers and beneficiaries. In addition, the weakness of politicians in Peru prompted these actors to align with public opinion once the issue had been politicized, which hastened the approval of reforms.

Two points are relevant for current debates on policy feedback. First, the division between customers and private actors concerning neoliberal reform opens the door to studying how neoliberal feedback effects can differ from original social democratic feedback effects, making neoliberal reforms more vulnerable to change than is recognized by the literature. It seems that in these and other cases of neoliberal reform, customers will not defend a system perceived as unfavorable to their interests. In expansive policies typical of social democratic reforms, there is a closed community of interests between individual and collective beneficiaries and the state institutions providing resources. Limiting policies affects citizens who benefit from them and the institutional apparatus in charge of the provision. This alliance is not as clear in neoliberal provision.

Such divisions between providers and customers may lead to similar processes in which benefits for users run counter to private systems marked by poor quality provision (health, education). Disi (2018) presented similar evidence of the political relevance of this division between providers and the public when he explained the reversal of significant aspects of Chile's higher education. Here, graduates affected by onerous student loans were key members of the reform coalition. More generally, the Peruvian case calls into question how strong the country's market model—a paradigmatic example of neoliberal resilience in the region—really is. The privatization of public services and other policies adopted in the nineties (e.g., privatization of the education system), may face similar reversals if critical interest groups emerge. As suggested by Dorlach and Starke (2021), though, other neoliberal reforms are likely to be more sustainable as they increase powerful financial interests and produce limited backlash in the form of interest groups (e.g., regressive tax reforms).

Second, weak parties tend to be associated in the literature with a lack of reform, enhancing the power of private actors over politics. In the absence of strong parties capable of adopting and structuring majoritarian social demands, particular interests can limit democratic changes. In line with the previous discussion, Vergara and Encinas (2016) point to weak politicians as one of the causes for the resilience of the market model in Peru. Politicians are not capable of producing and supporting alternate reforms. Nonetheless, in this case, the weakness of parties means that individual politicians are a catalyst for reform; scared parties will overreact in the face of these social pressures and quickly align with public opinion, sometimes to the point of contradicting their previous positions. Even right-wing parties closely associated with AFP reform, such as the Fujimorismo vehicle, supported the proposed reforms massively.

This “quick adaptation” to public demands causes fewer problems for democracy than in other countries where private power, entangled with stronger political parties, is more resilient to change. At the same time, such plebiscitary dynamics do not guarantee a solution to public problems. Even if one is critical of the AFP system, the reform weakens Peru's already limited pension provisions and a system that provides pensions for part of the population. A withdrawal of funds, as approved in the 95.5 percent law, is no solution to this public problem, as highlighted by an independent report produced for the Interamerican Development Bank (Altamirano et al., 2019). The private system is weakened, but the public problem remains. Furthermore, weak political parties lack the expertise or programmatic interest to push forward a comprehensive and realistic reform that could ameliorate the situation. Such democratic responsiveness is quite different from what we usually think democratic policies should look like.