SOCIAL SECURITY CHAIR WANTS TO SOLVE "PENSION

UNCLAS SECTION 01 OF 03 AMMAN 006441

SIPDIS

SENSITIVE

TREASURY FOR DEMOPULOS

E.O. 12958: N/A
TAGS: EINV ECON KPRV PINR JO
SUBJECT: SOCIAL SECURITY CHAIR WANTS TO SOLVE "PENSION
CRISIS" EARLY

REF: A. 2003 AMMAN 793


B. 2003 AMMAN 6945


1. (SBU) SUMMARY: The sustainability of the national pension
fund is a source of concern to Social Security Corporation
(SSC) chairman Khalid Al-Wazani - but he has a plan to
address these problems. There is progress on the SSC,s
proposed buyout of the stake held by the Arab Potash Company
in Jordan Bromine. Nevertheless, the continuous expansion of
SSC investments in Jordan may partially counter the positive
trend of a GOJ withdrawal from an activist role in the
economy. END SUMMARY.

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THE SSC AND WAZANI
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2. (SBU) The SSC, founded in 1978 and requiring
contributions since that time from all private companies
employing five or more people, has recently seen its scope
expand dramatically with the addition of coverage of all
civil government employees to the system in 1995 and the
addition of all Jordanian Armed forces (JAF) employees in

2003. The Corporation now holds the assets of 1.3 million
beneficiaries and participants, around a quarter of Jordan,s
total population and its entire labor force. The SSC is
close-mouthed about the amount of funds under its purview,
but it takes 16.5 percent of each worker,s pay (11.5 percent
from the employer and 5 percent from the employee),giving it
a great deal of clout in the Jordanian market.


3. (SBU) This clout is wielded by a 14-person Board of
Directors, which has final approval authority over all
investment recommendations made by the SSC,s investment
side, the statutorily separated Social Security Investment
Commission (except for recommendations that the Corporation
invest outside Jordan, which must be approved by the full
Jordanian Cabinet). The Board is chaired by the Minister of
Labor, and Wazani serves as Vice Chairman; the remainder of
the seats are equally divided between employers (represented
by members drawn from the Chambers of Commerce and Industry),
employees (represented by labor organization members),and
government (represented by the secretaries general of four
ministries). Wazani also acts as Vice Chairman of the Board
of the Social Security Investment Commission (SSIC).

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MAKING THE SYSTEM SUSTAINABLE
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4. (SBU) Wazani is clearly enjoying his new job, exulting
over the high pay and the influence that the position wields.
In early July, however, he told that he was concerned by a
problem familiar to pension managers elsewhere: the
demographic transition. In Jordan, Wazani says, this
transition is a long way from seriously affecting the SSC.
An actuarial study recently commissioned by the Corporation
found that the "zero point," at which contributions and
interest revenues equal pension payouts, will not come until

2051. Nevertheless, Wazani feels that now is the time to act
to delay the "zero point" for as long as possible. He sees
several gaping holes in the system that he feels should be
eliminated in order to make the financing of the system more
sustainable.


5. (SBU) The most pressing problem, as Wazani sees it, is
the attractiveness of early retirement. Jordanians are
currently allowed to retire at 45 and draw around 70 percent
of the benefits that they would receive were they to work to
Jordan,s full retirement age of 60. They are then taking
their skills and moving to the Gulf, while continuing to draw
their pensions because they are not on employment rolls in
Jordan. The perverse incentives created by this system,
Wazani argues, thereby drain Jordan both of financial and
human capital. Wazani therefore proposes two changes: first,
that the early retirement age be raised to 50, and second,
that the penalty in terms of pension benefits for early
retirement be much steeper.


6. (SBU) A second loophole that Wazani feels he should close
is the SSC rule indexing benefits to a participant,s final
salary, regardless of his/her contributions throughout
his/her previous life. This rule, Wazani said, has led
companies to begin giving raises to their employees
immediately before retirement in order to inflate their
pension benefits.

7. (SBU) Making these proposals into reality will require
parliamentary approval; Wazani is confident that he will be
able to push them through. He believes that as long as he is
able to paint the proposals as necessary protections for the
children of today,s SSC participants and beneficiaries, they
will be assured passage.

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INVESTING PHILOSOPHY
--------------


8. (SBU) While he says that he believes that the SSC should
be able to invest monies overseas without any higher approval
if it wishes to do so, Wazani prefers to invest in Jordan.
This inclination should reinforce the expanding SSC profile
in Jordan,s economy, an already existing trend that has seen
the SSC gain large positions in virtually all of Jordan,s
major corporations and developments. The SSC has stakes of
between 10 and 30 percent in almost all if Jordan,s major
banks, 30 and 60 percent in Jordan,s two major publishing
companies, and major stakes in Jordan Telecom (JT),Arab
Potash Company (APC),Jordan Petroleum Refinery Company,
Jordan Phosphate Mining Company, and other pillars of the
Jordanian economy (many of which, as in the cases of JT and
APC, had recently been privatized themselves by the GOJ).
The SSC is also the owner of hotel properties throughout
Jordan (though the SSIC seems decidedly unenthusiastic about
these properties - septel).


9. (SBU) Wazani gave the SSC,s actions in the case of
Jordan Gulf Bank as a model of the stabilizing role that he
believes the Corporation should play in the market. The
bank, which took very heavy losses in the Shemaileh scandal
(Reftel A),had been in limbo for over a year, as the GOJ
tried to decide what to do with it. According to Wazani, the
fund managers felt that the bank was solid, apart from a few
bad managers. The Board therefore took the decision to give
a fresh infusion of capital into the bank, increasing its
stake in the bank to 25 percent. This step reassured the
other investors, causing them to come back in and increasing
the value of the bank, and SSC,s stake in it, by 50 percent.

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PROGRESS ON JORDAN BROMINE
--------------


10. (SBU) Wazani says that the SSC is looking very seriously
at purchase of APC,s 50 percent stake in Jordan Bromine, an
action requested by the joint venture,s other partner,
U.S.-based Albemarle Company (Reftel B). He says, however,
that the price he has been quoted by the APC is far too high
- around twice the amount of APC,s investment to date in the
company. He has been in contact with Min. Halaiqa on the
issue and had sent out initial feelers to APC General Manager
Issa Ayyoub.


11. (SBU) (NOTE: ECON followed up this issue in meetings
with Dr. Mohammed Adeinat, the Chairman of the Board of the
SSIC, and Hatem Al-Shahed, the SSIC CEO. Shahed noted that
the SSIC had deliberately refrained from approaching the APC,
instead waiting on the APC to contact the SSIC in order to
gain an advantage in price negotiations. Neither Adeinat nor
Shahed appeared to be aware of Wazani,s approaches to the
APC. Adeinat said that Minister of Trade and Industry Dr.
Mohammed Halaiqa had mentioned his interest in a buyout two
months previously, but that Ayyoub had not called Adeinat
until July 11. Adeinat estimated that within a month, the
two sides would finalize an offer, and that the purchase
could be completed, if approved, within two months. END
NOTE.)

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COMMENT
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12. (SBU) While the Social Security Corporation appears to
be fiscally solid for a long time to come, passage of
Wazani,s proposed reforms will be a positive step for the
country and the firm. Such reforms may however be more
difficult to pass than Wazani seems to believe.


13. (SBU) We should also view with caution the large and
increasing role of a quasi-governmental fund in Jordan,s
economy. Wazani,s proud story of what was essentially a
bailout of Jordan Gulf Bank (or, in an example more positive
to U.S. interests, the fund,s possible future role in Jordan
Bromine) should serve as a reminder of the extent to which
the GOJ,s political considerations might affect the SSC,s
investment policies. This influence should make the fund,s
very large stakes in Jordan,s media companies of special
concern. One possible cure for the problem may be to permit
greater international investment by the SSC. Econoffs have
heard complaints more than once from Investment Unit
employees that the SSC is already invested as deeply as is
prudent in virtually every good investment in Jordan, and as
funds continue to flow in, the fund is forced to put money
into more marginal investments instead of diversifying into
other markets. Such a trend is good neither for the SSC nor
for the Jordanian economy as a whole. Despite his
protestations to the contrary, Wazani probably understands
the downside of an exclusively domestic focus for the SSC.
Post will continue to explore options for constructive
cooperation with the SSC in pursuit of these goals.


14. (SBU) (BIO NOTE: Wazani, a former Fulbright recipient,
has held his current position since the beginning of 2004.
Prior to this, he held a job as Director-General of Customs
from November 1999 to June 2001, and acted as Director of the
Economic and Development Division of the Royal Court (a job
previously held by current Minister of Planning and
International Cooperation Bassem Awadallah) from July 2001
until the beginning of 2004. END BIO NOTE.)
HALE