Funded and Private Pensions for Eastern European Countries in Transition?

Robert Holzmann

Abstract


All reform countries in Central and Eastern Europe require a rapid and comprehensive restructuring of their public pension schemes for macroand microeconomic reasons. For the time being, however, progress in reform is very limited. The paper argues that pension reform, economic restructuring, and the growth options for these countries are closely related, and that by pursuing a reform which is at least partially directed towards private and funded pensions, the economic course of these reform economies may importantly be changed. In addition, such a reform approach may break the current reform deadlock. The shift towards funded pensions could help to develop the financial sector and thus may bring the reform countries more rapidly towards a higher growth path. Recent developments in endogenous growth modelling support these conjectures. Yet for the time being, the financial sector in the reform economies may not be sufficiently developed to allow the introduction of funded pensions on a large scale. What the minimum conditions for the financial sector are and how they can be introduced rapidly is very much open for discussion.

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