Argentina Nationalizes $30 Billion in Private Pensions

The New York Times
By ALEXEI BARRIONUEVO
Published: October 21, 2008
BRASÍLIA — Argentina’s government said Tuesday that it would seek to nationalize nearly $30 billion in private pension funds to protect retirees from falling stock and bond prices as the global financial crisis continues.
The measure, confirmed in a speech in Buenos Aires late Tuesday by Cristina Fernández de Kirchner, Argentina’s president, was criticized by political opponents and analysts as a move to shore up government coffers to try to head off a fiscal crisis in 2009, when Argentina might be struggling to make billions of dollars in debt payments.
The announcement sent the Buenos Aires stock market, the Merval, down nearly 11 percent, and led analysts to question whether the nationalization, which is subject to approval by the Argentine legislature, puts property rights at risk and threatens the rule of law in the country.
It may be the first time a Latin American government has expropriated cash. The move is expected to give the government breathing room as falling commodity prices drive down tax revenue from agriculture by as much as $6 billion next year, according to some estimates. Commodity prices have fallen as fears of a global slowdown have grown.
Argentina’s precarious fiscal situation predated the global financial crisis.
Argentina is one of the world’s top five exporters of beef, soy, corn and wheat, and falling prices for those commodities have diminished the government’s main sources of revenue. The country spent much of its windfall during this decade’s commodity boom paying off debts and subsidizing fuel and other consumer items to stimulate rapid growth.
Now it may face a struggle to pay some $22.4 billion in debt obligations and other payments due next year, Daniel Kerner, an analyst with Eurasia Group, a risk consulting firm, said.
So far, other governments in South America, including Brazil’s and Chile’s, have said they will tap Central Bank reserves or stabilization funds amassed during the commodity boom to help important export industries withstand the global credit crisis.
Mrs. Kirchner characterized Argentina’s move as government protectionism in line with bank bailouts in Europe and the United States. “We are making this decision in an international context in which the leading countries in and out of the G-8 are protecting their banks, while we are protecting our retirees and workers,” she said in a televised speech.
She dismissed criticism that the move was simply a grab for cash, noting that the private pension plan put in place 14 years ago had produced a low rate of return for holders this year.
But analysts said the move could hurt Argentina. “This will be a major blow to the country’s isolated capital markets, and will probably dampen consumer and investor confidence further,” Mr. Kerner said.
The opposition leader Elisa Carrió, who ran against Mrs. Kirchner for president, told Radio Mitre on Tuesday that the government was trying to “loot the funds of retirees.”
According to the plan, all the assets in individual accounts would be transferred to the state’s “pay as you go” system, and affiliation to the state system would be mandatory, effectively putting an end to the current dual system.
Regional elections are scheduled for October 2009. By taking over the pension funds the government can continue to spend on programs that help it retain political support, which Mrs. Kirchner lacks after a debilitating four-month strike by farmers over export taxes that ultimately ended in defeat for the government.
If the move is approved, her government may have secured an important electoral asset, which could help guarantee Mrs. Kirchner’s political survival.
Vinod Sreeharsha contributed reporting from Buenos Aires.