Gregorio Impavido reduce the credibility of the macroeconomic stance in countries with a poor record of economic discipline.

Even countries without explicit social mandates for pension funds often limit investment abroad, with the implicit rationale that local savings should be used to develop the local economy. Is localization of investments justified? Should exchange controls be applied to contractual savings? Fontaine (1997) surveys the Chilean experience with foreign investment by pension funds and concludes that there are no (good) macroeconomic reasons to treat international investment by pension funds differently than local investment.6 In other words, foreign investment by pension funds should be subject to the same _(mutatis mutandis)_ rules of diversification applied to domestic investments. Indeed, policymakers should allow foreign investment by public pension schemes in order to diversify away local risks. Countries that need to impose foreign investment restrictions on the stock of contractual savings assets (public or private) because of balance of payments concerns are countries that have an unstable macroeconomic environment. These countries need to stabilize their economies first.

# **Table 2. Drivers of organizational performance**

|**Governance**|
|---|
|Mygovemingfiducarieshave goodmechanismstounderstandandcommunicatewithplan<br>stakeholders.,<br>|
|Mygovemingfiducariesdoagoodjobofbalancingovercontrolandundercontrol.<br>Our fundhasaneffectiveprocessforselecting,developing,andterminatingitsgovemingfiducaries.<br>Mygovemingfiducariesandrelated committeesusetheir timeefficiently(focused anddo notwaste<br>time).<br>|
|Thereisahighlevel oftrustbetweenmygovemingfiduciariesandthepensioninvestmentteam.<br>There isaclearallocationofresponsibilitiesandaccountabilitiesforfunddecisionsbetweenthe<br>govemingfiduciariesandthepensioninvestmentteam.<br> <br>|
|Planningandmanagement<br>4<br>|
|Icandescribeourvisionofwhereweshouldbeinthefuture.<br>|
|Icandescribeourfund'sstrategicpositioning(howweprovidebettervaluetostakeholders than<br>altematives).|
|Ican describeourresourceplan(obtainingandoptimallyutilizingtherequiredhuman,financial,and<br>informationtechnologyresources).<br>|
|Developingourassetmixrequiredconsiderableeffortonthe partofmyselfand thegoveming fiduciaries,<br>anditreflectsourbestthinking.<br>|
|opratIons<br>|
|Myorganizationusesitstimeefficiently(wellfocusedanddoesnotwastetime).<br>|
|Notes: a.Governingfiduciariesaremembersofthegoverningbody.<br>Source:Ambachtseer(2001).|

> In a work of a different flavor (and focusing on private pension funds), Ambachtseer

> (2001) also finds that organizational performance is strongly correlated with governance

to invest in mortgage loans and often asked to be direct developers. The Alaskan Retirement System lost around $80 million from its housing investments (mortgages and real estate) when the price of oil fell and with it the value of properties and the ability of borrowers to repay the loans. In the second half of the 1 990s, the National Social Security Fund of Tanzania (NSSF) was investing in personal loans and in huge residential and commercial buildings despite financial guidelines from the Central Bank requiring that social security funds be used to purchase liquid assets.

6 Only in March 1990 were pension funds allowed to invest abroad, almost ten years after the pension reform. At that time, regulation allowed foreign investment of up to 3 percent of the portfolio in fixedincome securities issued by low-risk countries and banks. In 1995 investrnent in foreign shares was allowed with a limit of 12 percent of the total portfolio.

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