Saturday, November 1, 2008

Argentina's pensions

La Presidenta is trying to get her hands on private pension monies to bail out her government.

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.

Memories of the 2001 crisis remain.

Many view Mrs. Kirchner's pension move last month as a sign of desperation that could presage other unorthodox policy decisions. Memories of the government's decision to freeze deposits during the last crisis are still fresh.

Aside from Argentinians themselves, others are troubled (that is, scared) be Cristina's reaching for the pensions.

Mrs. Kirchner's plan has stirred trouble outside Argentina as well. This week, a U.S. judge froze up to $1.6 billion held in the U.S. by the Argentine pension funds that Mrs. Kirchner is hoping to nationalize. U.S. bondholders are suing to recover money they lost when Argentina defaulted during the last crisis. Mrs. Kirchner had ordered the pension funds to repatriate overseas assets ahead of the nationalization.

Nice and subtle, eh? Repatriate it, and then it'll be nationalized.

Argentina ran out of money in 2001 and committed history's biggest sovereign-debt default. The commodity boom brought a brief recovery, but the boom is over, and left the nation saddled with debt. Faced with at least $11 billion of debt payments next year, Mrs. Kirchner wants to raid the accounts to avoid defaulting while maintaining politically sensitive welfare payments, analysts say.

Pork-barrel, earmarks, call it what you will, it's a global practice.

Argentina's privately managed pension system was set up in the mid-1990s, and the accounts were devastated in the 2001 crisis. Mrs. Kirchner says she is nationalizing the accounts to protect them from market volatility.

O, right: gimme the money, I'll protect it. Does a bridge come along with it?

Employees of private pension companies protest the government's plan to nationalize pension funds in Buenos Aires last week. President Kirchner defends her plan as a way to protect money from the global financial crisis.

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