President Cristina Fernandez is proposing a bill to socialize Argentina’s privately run retirement account system. She says it’s a safeguard; critics say it’s a sign of despair.
Argentina Pension Nationalization Plan: Security or Surrender?
The move would channel an additional $400 million into public coffers, helping to buffer against default. “The government could also force the pension system to roll over the 10% of public debt held by the private funds on terms of its own choosing,” writes The Economist.
Fernandez defended the move by saying, “The G8 countries are protecting their banks, and we’re protecting our workers and retirees.” But some politicians and economists fear the deal may be a reprise of the government raids that sparked the privatization of the retirement accounts in the first place.
In response to Argentine pension accounts getting routinely gobbled by government takeovers and rampant inflation, former President Carlos Menem set up a private pension scheme in 1994 that gave workers the choice of staying with a state-run retirement plan or switching to one of 10 privately managed pension accounts, among them U.K.-based HSBC and Spain’s BBVA.
Nine years later, 83 percent of the Argentine workforce had moved their nest eggs into the private pension accounts. And in 2008, the 9.3 million retirement accounts are the biggest investors in Argentina’s fragile capital markets.
Locally traded stocks fell almost 18 percent on Wednesday and 24 percent over two days on the back of the news that Argentina-based bonds fell an average of 10 percent on Wednesday, and 28 percent over the same two-day period.
Eduardo Blasco, an economist with business consulting firm Maxinver, told Reuters, “Investors are extremely panicked. People start imagining things like [former president and Fernandez’s husband] Nestor [Kirchner] and Cristina can start expropriating as if it were a war.”