...grim outlook for Mexico's Institute of Social Security for Government Employees (known by its Spanish initials as Issste and pronounced ee-stay), which manages the pension accounts and health benefits of some 2.8 million active and retired federal employees. These include bureaucrats, doctors, nurses, health-care workers and teachers, but not the employees of the state-owned oil company Pemex.

Issste's pension arm currently provides retirement benefits to 580,000 individuals and like so many pay-as-you-go systems, the agency is operating in the red. With an average retirement age of 56 and retirees living longer, Issste has obligations that far outstrip its income and every year the deficit grows. In 2000, Issste's pension deficit was 10 billion pesos ($909 million). This year the government has set aside 42 billion pesos to fill the gap. By 2012 the shortfall is forecast to hit 77 billion pesos. According to the Finance Ministry, Issste's actuarial deficit in pensions is equal to over 50% of Mexican gross domestic product. Issste is a ticking time bomb...

The centerpiece of the reform, which passed the lower house last week and is expected to pass the Senate this week, is the establishment of worker-owned, individual accounts to replace the communal pool at Issste. There are no changes for those already retired. Current workers will have the choice of staying with the government's defined-benefit plan and accepting gradual increases in the retirement age, or migrating to the new individual account, defined-contribution system.