Pension Funds Will Go Bankrupt

Pension funds will go bankrupt

Pension funds will go bankrupt. According to Iran Gate, recent statements by one of the directors of Raisi’s Ministry of Welfare regarding the intensification of the super-crisis of pension funds have caused deep concerns among economists. This issue is not new, however, as it traces back to the early years of the revolution and particularly the 1980s.

However, it seems that the perpetual and chronic crisis of these funds in recent years has turned into a super-crisis and today has become a hyper-crisis. This matter is so serious that economists believe that failure to resolve this hyper-crisis could even lead to economic collapse and ultimately the collapse of the Islamic Republic regime.

More than a year ago, Dr. Masoud Nili, a prominent Iranian economist, reported on the intensification of the super-crisis of pension fund bankruptcies. At that time, due to this event, he referred to the bankruptcy of these funds as a hyper-crisis. Now, a year has passed since that period, and the statements made by one of the officials of Ebrahim Raisi’s government to describe the severity of the situation have attracted much attention. But what is the issue, what is the reason for the bankruptcy of these funds, and why do economists refer to this event as a hyper-crisis that could even pave the way for the country’s economic collapse?

Iran Gate, in a two-part series, attempts to investigate the roots of this crisis and explain its consequences as it reaches a critical point to its audience. In the first part of this series, the roots of this crisis are explored.

Selling Qeshm and Kish to keep people quiet

Sajjad Padam, the Director-General of Social Insurance at the Ministry of Labor, recently made a controversial statement saying that we will reach a point where we have to sell Qeshm and Kish to pay retirees’ salaries. This statement by the Director-General of Social Insurance at the Ministry of Labor is enough to understand what the situation is. In a word, the pension funds, due to bankruptcy, do not have the ability to pay their members’ salaries. The situation has escalated to such an extent that government officials are forced to use such provocative and sensitive examples to describe the severity of the situation and attract attention.

In fact, what can be inferred is that the government needs a large amount of money to pay the salaries of retirees who might start protesting with the slightest provocation. Therefore, it seems that the regime has prepared itself for testing difficult and challenging options like selling Qeshm and Kish to prevent the flames of this super-crisis from engulfing it and paving the way for the collapse of the system.

All roads lead to inflation

But why are funds that are generally very wealthy and rich globally struggling? To answer this question, we must once again refer to the chronic inflation issues in Iran’s economy. As has been said many times, the government institution has always been dependent on oil revenues over the past half-century and has faced small and large budget deficits with the slightest tension in oil exports.

This budget deficit is also compensated from non-dynamic sources due to the non-dynamic and stagnant nature of Iran’s economy. In simpler terms, governments are forced to dip into parts of the country’s economy that do not have sustainable and dynamic income to pay their employees’ salaries.

This vicious cycle has led governments to always resort to borrowing from various sources and references. The Central Bank has always been the most important and major lender to various governments and still is. This type of borrowing is effectively taking money from ordinary people because the Central Bank is forced to expand the monetary base or, in common terms, print money to meet the government’s needs, which ultimately leads to the intensification or creation of inflation.

Inflation, according to economists, acts as a nighttime theft by governments from the people’s pockets, effectively taking money from the people. In other words, government borrowing from the Central Bank is essentially borrowing from ordinary people, with the difference that governments never repay their debts to the people, and the general public, due to their lack of awareness, never becomes aware of this silent theft.

Why bankruptcy

However, as mentioned, there are other ways to borrow and provide resources to compensate for the deficit. The first way was dipping into people’s pockets, and the second way is borrowing from other wealthy non-governmental or quasi-governmental references. Among these sources and references are the pension funds, which have been accompanied by many controversies since their inception in Iran. These funds are essentially meant to provide non-inflationary, non-governmental, and self-sustaining support for the retirement needs of the workforce worldwide. Therefore, they are generally wealthy references that are assessed as one of the factors of welfare in society in developed countries.

With this understanding, governments, seeing that these funds have sufficient resources, take action to borrow from them to compensate for the heavy budget deficits of various periods. Given that inflation in Iran has not only not been controlled but is currently at its peak, it is easy to imagine that governments have not only been unable to repay their debt to these funds but that the volume of this debt has increased annually.