Argentina seeks to nationalize private pensions

By JEANNETTE NEUMANN | 21 Oct 2008 | 07:28 PM ET
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BUENOS AIRES, Argentina - President Cristina Fernandez proposed a government takeover of nearly US$30 billion in private pension funds on Tuesday, saying retirees must be protected from the global financial crisis.
But her move spooked investors and triggered steep falls in Argentine stocks and bonds.
"While the U.S. and other countries are stepping in to rescue their banks, Argentina must protect our retirees," Fernandez said as she signed a nationalization bill that now goes to Argentina's Congress, which is expected to approve it within weeks.
Fernandez said she's required by the constitution to guarantee pensions. And Amando Boudo, executive director of the national social security administration, said "the government's only motivation to carry out this measure was to rescue our future and current pensioners from uncertainty."
But political opponents called it a scramble to prop up revenue that has fallen along with prices of soy and other commodities.
The Buenos Aires' Merval index closed down 10.99 percent at 1,047, after dropping more than 13 percent in mid-day trading. Benchmark Argentine bonds fell by an average of 7 percent, fueling the country risk measured by JP Morgan's EMBI+ index to 1,604 basis points.
"It tells the market that the government thinks it can change the rule of the game whenever its wants, which has caused Merval to fall, while the rest of the world remains steady," said Camilo Tiscornia, an economist with the Buenos Aires consultancy Castiglioni, Tiscornia y Asociados.
The ten companies that manage the funds were banned from trading on the Buenos Aires stock exchange for seven working days by federal Judge Claudio Bonadio, who blamed their dumping of bonds and stocks for provoked the sharp drop.
Economic analyst Rogelio Frigerio in Buenos Aires called it "a desperate measure to fill the coffers of the public sector." Political opposition leader Elisa Carrio accused the government of trying to "loot the funds of retirees."
The nationalization would provide the government with enough cash to pay off millions in debt and finance infrastructure projects starved for credit. But Argentine governments have had a mixed record in managing pensions.
When Argentines were allowed to switch between private and public pension funds last year, only 20 percent opted for the government's plan. About one-fourth of Argentina's 40 million citizens use the private funds, contributing a total of $4.6 billion annually.
The private accounts, created in 1994 during a wave of privatizations, include Arauca Bit AFJP; Consolidar fund run by BBVA Banco Frances SA, a unit of Spain's BBVA; HSBC Holdings Plc's Maxima fund; Met AFJP, which is run by MetLife Inc; Origenes, owned by ING Groep NV; Futura AFJP; Nacion AFJP, run by Argentina's National Bank; Profesion + Auge AFJP; Unidos S.A. AFJP; Previsol AFJP S.A.
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Associated Press Writer Mayra Pertossi in Buenos Aires and Eduardo Gallardo in Santiago, Chile contributed to this report.
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