Pension funds and the financing productive investment: an analysis based on Brazil's recent experience

Abstract This paper analyzes the recent development of pension funds in Brazil in the 1990s (and especially in the second half of this decade). It draws lessons from Brazil's recent experience to assess the potential of these institutions as suppliers of funds to productive investment and to discuss policies that could possibly enhance and make effective this potential.It concludes that pension fund reforms are important potential suppliers of long-term non-inflationary financing to productive investment. Low inflation and sustained macroeconomic stability are important (even necessary conditions) for the enhancement of this. But they do not seem to be a sufficient condition. In economies where capital markets are shallow and/or inherently volatile, additional institutional and regulatory arrangements need be created in order to stimulate the channeling of long-term funds of pension funds towards the acquisition of newly issued corporate securities. There seems to be a wide variety of possible regulatory and institutional arrangements, and in this paper we explore one of them.