Page

Explanatory notes

vii

Abbreviations

viii

About the main contributors to the Seminar

viii

Preface

xi

Part One - CURRENT ECONOMIC DEVELOPMENTS

Chapter 1

THE ECE ECONOMIES IN AUTUMN 1999

3

1.1

The global context and the western market economies

3

(i)

The global context

3

(ii)

Western Europe and North America

5

1.2

The transition economies

14

(i)

Introduction

14

(ii)

Output and demand

14

(iii)

Inflation

22

(iv)

Unemployment

25

(v)

International trade

27

(vi)

Current accounts and external financing

35

(vii)

Short-term outlook

40

Part Two - DEMOGRAPHIC AGEING AND THE REFORM OF PENSION SYSTEMS IN THE ECE REGION

Papers from the ECE Spring Seminar, May 1999

INTRODUCTION AND SUMMARY OF DISCUSSION by the Economic Analysis Division, UN/ECE

45

Chapter 2 - THE ANATOMY OF THE PENSIONS "CRISIS" - John Eatwell

2.1

Introduction

57

2.2

Financing pensions

59

2.3

The pensions crisis

61

Discussion of chapter 2

2.A

The macroeconomics of pension reform by Colin Gillion

62

2.B

Alternative pension systems by D. Mario Nuti

64

2.C

Lessons from Germany on occupational pensions by Thomas Weiss

66

Chapter 3 - FORGING A NEW CONSENSUS ON PENSIONS - Lawrence H. Thompson

3.1

Introduction

69

3.2

Economic impacts

70

(i)

Why mandatory retirement programmes are created

70

(ii)

The economic cost of pension programmes

70

(iii)

Pensions and savings

71

(iv)

Pensions and labour supply

72

(v)

International competitiveness

73

3.3

Choosing among the pension approaches

73

(i)

Setting pension contribution rates

73

(ii)

Changing from one approach to another

74

(iii)

Mid-career economic and demographic risks

75

(iv)

Post-retirement risk

76

3.4

Advantages of a mixed, multi-pillar system

76

(i)

Spreading of risks

76

(ii)

Relative size of the two pillars

77

3.5

Closing observations

77

Discussion of chapter 3

3.A

Forging a new consensus on pension reform: further considerations by Johann K. Brunner

79

3.B

Pensions and the fight against poverty and inequality in old age by Joakim Palme

80

3.C

Forging a new consensus on pensions: a Latin American perspective by Andras Uthoff

83

Chapter 4 - PENSION SYSTEMS AND REFORMS IN THE TRANSITION ECONOMIES - Maria Augusztinovics

4.1

Introduction and overview

89

4.2

Demographic background

89

4.3

Economic background

91

4.4

Pension economics

92

4.5

Pension schemes

96

4.6

Pension reforms

100

Discussion of chapter 4

4.A

The merits of fully-funded versus pay-as-you-go in transition economies by Jerzy Hausner

103

4.B

To improve or privatize public pensions? by Romas Lazutka

107

4.C

Growth, pension reform and capital markets in transition economies by Paul Wachtel

110

Part Three - STATISTICAL APPENDIX

STATISTICAL APPENDIX

115

LIST OF TABLES

Table

Page

1.1.1

Quarterly changes in real GDP, 1998-1999

6

1.1.2

Quarterly changes in real GDP and main expenditure items, 1998-1999

8

1.1.3

Real GDP in the developed market economies, 1996-1999

13

1.2.1

Basic economic indicators for the ECE transition economies, 1997-2000

16

1.2.2

International trade and external balances of the ECE transition economies, 1997-1999

17

1.2.3

GDP and industrial output in the ECE transition economies, 1998-1999

18

1.2.4

Retail trade in selected transition economies, 1998-1999

19

1.2.5

Consumer prices in the transition economies, 1997-1999

23

1.2.6

Registered unemployment in the transition economies, 1998-1999

26

1.2.7

Foreign trade of the ECE transition economies by direction, 1997-1999

28

1.2.8

Changes in the volume of foreign trade in selected transition economies, 1995-1999

30

1.2.9

CIS countries’ trade with CIS and non-CIS countries, 1998-1999

34

1.2.10

Current account balances of the ECE transition economies, 1996-1999

37

1.2.11

Net capital flows into the ECE transition economies, 1996-1999

39

1.2.12

Foreign direct investment in the ECE transition economies, 1996-1999

40

2.1.1

Demographic effects on the share of state pensions in GDP and the financing burden, 1984-2040

58

2.2.1

Advantages and disadvantages of pay-as-you-go (PAYG) pensions

60

2.2.2

Advantages and disadvantages of fully-funded (FF) pensions

60

2.A.1

The fallacy of composition

62

2.A.2

Total dependency and contribution rates under different scenarios

64

4.2.1

Major demographic indicators in Europe, 1990-1995

90

4.2.2

European male life expectancy at birth, 1950-1995

90

4.3.1

Real GDP/NMP

92

4.3.2

Employment

92

4.3.3

Labour’s share of GDP/NMP, 1995

92

4.4.1

Changing pension economics in the Visegrad countries, 1996

94

4.4.2

Average retirement age, 1950 and 1990

95

4.A.1

Comparison of disability and retirement pensions for miners and the population as a whole in 1996

103

4.A.2

Present system: result of public opinion polls, 1997

106

4.A.3

The new system: result of public opinion polls, 1997

106

4.A.4

Assessment of the current pension system, 1995 and 1997

106

A.1

Real GDP in the ECE market economies, 1984-1998

117

A.2

Real private consumption expenditure in the ECE market economies, 1984-1998

118

A.3

Real general government consumption expenditure in the ECE market economies, 1984-1998

119

A.4

Real gross domestic fixed capital formation in the ECE market economies, 1984-1998

120

A.5

Real total domestic demand in the ECE market economies, 1984-1998

121

A.6

Real exports of goods and services in the ECE market economies, 1984-1998

122

A.7

Real imports of goods and services in the ECE market economies, 1984-1998

123

A.8

Industrial output in the ECE market economies, 1984-1998

124

A.9

Total employment in the ECE market economies, 1984-1998

125

A.10

Standardized unemployment rates in the ECE market economies, 1984-1998

126

A.11

Consumer prices in the ECE market economies, 1984-1998

127

B.1

Real GDP/NMP in the ECE transition economies, 1980, 1985-1998

128

B.2

Real total consumption expenditure in the ECE transition economies, 1980, 1985-1998

129

B.3

Real gross fixed capital formation in the ECE transition economies, 1980, 1985-1998

129

B.4

Real gross industrial output in the ECE transition economies, 1980, 1985-1998

130

B.5

Total employment in the ECE transition economies, 1980, 1985-1998

131

B.6

Registered unemployment in the ECE transition economies, 1990, 1994-1998

132

B.7

Consumer prices in the ECE transition economies, 1989-1998

133

B.8

Producer price indices in the ECE transition economies, 1989-1998

134

B.9

Nominal gross wages in industry in the ECE transition economies, 1990-1998

135

B.10

Merchandise exports of the ECE transition economies, 1980, 1986-1998

136

B.11

Merchandise imports of the ECE transition economies, 1980, 1986-1998

137

B.12

Balance of merchandise trade of the ECE transition economies, 1980, 1986-1998

138

B.13

Merchandise trade of the ECE transition economies by direction, 1980, 1986-1998

139

B.14

Exchange rates of the ECE transition economies, 1980, 1986-1998

140

B.15

Current account balances of the ECE transition economies, 1990-1998

141

B.16

Inflows of foreign direct investment in selected ECE transition economies, 1990-1998

142

LIST OF CHARTS

Chart

Page

1.1.1

World commodity prices, January 1996-September 1999

5

1.1.2

Changes in real GDP, 1995 QI-1999 QII

7

1.1.3

Monthly export value indices, 1996-1999

7

1.1.4

Unemployment rates in major ECE market economies, January 1994-August 1999

9

1.1.5

Changes in consumer price indices in the euro area and the United States, January 1996-September 1999

10

1.1.6

Nominal short-term and long-term interest rates, January 1997-October l999

11

1.1.7

Euro reference rates, January 1999-October 1999

12

1.1.8

Real effective exchange rates, January 1995-August 1999

12

1.2.1

Quarterly changes in the exports and imports of eastern Europe and the Baltic states, 1997-1999

31

2.A.1

Contribution rates at different dependency ratios

63

2.A.2

Saving rates at different dependency ratios

63

3.B.1

Targeting of public pensions and income inequality among the elderly in nine OECD countries

81

3.B.2

The reformed Swedish pension system

83

3.C.1

Number of affiliates and contributors, 1982-1997 .

84

3.C.2

Average real returns by date of entry in Chile, 1981-1998

84

3.C.3

Portfolio of pension funds, 1981-1997

86

3.C.4

Affiliates’ transfers between managers, 1983-1997

87

3.C.5

Number of sales agents, 1982-1997

87

4.2.1

The demographic transition in Hungary, 1900-1995

90

4.2.2

Actual versus stationary age profiles in Hungary and Poland, 1994

91

4.4.1

Demographic and system dependency in Hungary, 1970-2070

96

4.A.1

Growth in number of pensioners for selected transition economies

104

4.A.2

Decline in number of contributors for selected transition economies

104

4.A.3

Change in the system dependency ratios for selected transition economies

105

4.B.1

Forecast of numbers of retirement ages in Lithuania, 1995-2025

108

4.B.2

Changes in real GDP in Lithuania, 1991-1998

108

4.B.3

System dependency ratio of the Lithuanian social insurance pension scheme, 1991-2025

109

LIST OF BOXES

Box

Page

4.4.1

The basic arithmetic of a pension system

93

4.5.1

Pre-reform characteristics of public PAYG pension schemes in transition economies

99