Monday, November 3, 2008

Argentina's Pensions

"Hemmed in by the global financial squeeze and commodities slump, Argentina's leftist government has seemingly found a novel way to find the money to stay afloat: cracking open the piggybank of the nation's private pension system. The government proposed to nationalize the private pensions, which would provide it with much of the cash it needs to meet debt payments and avoid a second default this decade. ... Argentine President Cristina Kirchner said the move to take over the private pension system was aimed at protecting investors from losses resulting from global market turmoil. ... While no one knows for sure what the government would do with the private system, economists said nationalization would let the government raid new pension contributions to cover short-term debts due in coming years. ... Three million Argentines ... can track their accounts and have some say over how the pension funds invest the money, making the system somewhat like the U.S. 401(k) accounts. ... The main Merval Argentine stock index tumbled 12% on Tuesday, largely on fears that the market would atrophy if the government used new pension contributions to pay debt rather than let if go into the capital markets. ... Kirchner painted the move as an attempt to help workers weather the financial crisis. ... Opposition leader Elisa Carrio vowed to contest [the move], saying, 'The government measures aren't designed to better the retirement system but rather to plunder the funds of the retirees.' ... Prior to the 2001 economic collapse, ... the government placed limits on bank withdrawals. Later, it issued a decree converting dollar-denominated deposits to pesos", my emphasis, Matt Moffett at the WSJ, 22 October 2008.

"Mrs. Kirchner justified the proposed seizure of $30 billion in pension assets by accusing the funds of having instrumented 'policies of plunder.' She said Argentina was setting an example of how to deal with the global financial crisis. ... The nationalization, if approved by Congress, will also provide Mrs. Kirchner with more cash for political patronage", my emphasis, Matt Moffett at the WSJ, 23 October 2008.

"That the state could seize retirement savings no doubt seems outrageous to Americans. ... Kirchner won't have trouble making the case for expropriation to Congress, which is controlled by her fellow Peronists. ... Since [2001 Argentina] has imposed price controls, defaulted on its debt, seized dollar bank accounts, devalued the currency, nationalized businesses and tried to set confiscatory tax rates with the aim of making society more 'fair'," Editorial at the WSJ, 23 October 2008.

"Across the developed world, solvent governments have temporarily nationalised banks whose survival was in doubt. Argentina, which often resembles the rest of the world through a distorted mirror, likes to do things differently. There the private pension system, which has suffered investment losses but is otherwise sound, now faces permanent nationalisation by a government whose own solvency has been called into question. ... The immediate effect was ... the Buenos Aires stock-exchange fell 24% in two days, and investors dumped Argentine bonds, sending their yield soaring to 28%. Many economists and opposition politicians fear that the government's intention is to raid the pension funds to fill a widening fiscal hole. 'A legalised robbery' was how La Nacion, a newspaper dubbed it in an editorial. ... 'It looks like they want to use the workers' money for non-pension spending,' says Gregorio Badeni, a professor at the University of Buenois Aires. ... By proposing the nationalisation, Ms. Fernandez has further undermined faith in her government's solvency and in property rights", my emphasis, Economist, 23 October 2008.

"Argentina's leftist government pressed forward with its controversial plan to nationalize private pension funds, laying out investment guidelines for the funds it wants to seize and lobbying Congress to approve the proposal. Taking over the $30 billion in pension fund assets will ease the cash crunch faced by President Christina Kirchner's government., but it has jolted investor confidence and triggered a dollar outflow. ... Kirchner said her move to seize the private funds is designed to protect contributors from alleged mismanagement amid the global market crisis. But economists say it is aimed at replenishing government offers ahead of midterm elections and sizable debt payments coming due", my emphasis, Michael Casey and Matt Moffett at the WSJ, 28 October 2008.

"Congress has yet to approve Argentine President Cristina Kirchner's move to seize $28 billion of retirement savings to fund her cash-strapped government, but already the plan has produced a thicket of problems. One troubling reaction: Argentines are cashing their peso bank accounts and lining up to buy dollars at crowded exchange houses. The peso fell 7% last month, prompting the central bank to spend at least $1 billion to defend it. It's an ominous situation in Argentina, where the government and the currency collapsed in 2001 amid a frenzy of withdrawals", John Lyons and Michael Casey at the WSJ, 1 November 2008.

This is big news. Countries stealing pensions is old news. Despite what Walter Wriston, once Citigroup chairman said, countries go bust. I wonder if any Obama financial advisor has a similar plan for US 401(k) accounts? Nothing any government official of any country says should be taken at face value. Look at the US "Social Security Trust Fund" (SSTF). It does not exist. Kirchner's concern for Argentina's investors is touching. I have an idea for her: tell Zimbabwe Ben (ZB) she needs commodity prices to increase to avoid defaulting on Argentina's debts to US banks. We'll see how quickly ZB asks his handlers what to do. I wonder who told Kirchner to try to seize the pensions? A financial advisor who was "formerly" with say, Goldman Sachs?

Anyone with a pension plan, be warned. Argentina just "set an example" in showing the world how to seize your money. What gall, to claim the pension managers are plundering the plans.

I would like the WSJ to denounce the $700 billion bailout, like it has Argentina's proposed $30 billion pension asset theft. I hope Nancy Pelosi doesn't read about Argentina. It might give her ideas. How does Uncle Sam use the SSTF, if not for current outlays?

People who live in glass houses should not throw stones. The Economist should ask Badeni to look at Uncle Sam's solvency, or lack thereof.

I chose to believe the President of Argentina is lying.

Where will Americans go when Uncle Sam threatens them with asset confiscations similar to those contemplated by Argentina's "New Evita"? Hint: it's a four-letter word.


Anonymous said...

The usa confiscates via inflation. Not saying they are above stealing the money outright, but hell, they already steal the money outright by stock market bubbles, private plunder of retirement accounts. It is getting bad.

Independent Accountant said...

No argument here. However, Argentina also uses inflation, but apparently decided this outright seizure might be more effective.

Anonymous said...

Spooky stuff down in SA. How many defaults of sovereign debt?

Privatizing private pension plans seems like a huge disincentive to save. Although humans probably have a primal desire to store up resources.

Actually if the government attempted to nationalize private pensions here that make create some useful political change. A big 'ol fight.

Barney Frank is breathing a little fire on the 700B bones bailout. I wish our Senators would make some noise on the issue. Give the Obamites a chance. They might surprise us.

edgar said...

here ya go i.a.:

The retiree advocacy group AARP has asked U.S. Treasury Secretary Henry Paulson to temporarily freeze mandatory retirement account withdrawals.

Americans aged 70 ½ and over are required to take distributions from their retirement accounts based on the fair market value of their account on the last day of the previous year.

Failure to take a required distribution by Dec. 31 results in a tax penalty equal to 50 percent of the amount of the distribution.

In effect, seniors would lose half of their money in one shot, on top of a huge market decline.

“The sudden decline in the economy and plunging stock markets has jeopardized the retirement savings of millions of retired workers,” says AARP CEO Bill Novelli in a letter to Paulson...

teh usa makes argentina look like choir boys.

Anonymous said...

Cristina Civale is a journalist from Buenos Aires.

We've got radio and TV channels broadcasting live from the event. Me, I'll be on the internet so I can stay in touch with my friends around the world. I'm part of a Facebook group that automatically changes your status to remind people to vote. Most Argentinean people support Obama. But we know it won't make much difference to us. The important thing is, is Bush; that it's over. But really, right now we're more worried about the nationalisation of the pension funds here than the election."

Anonymous said...

I'll C U,
in C U
B A.