Argentina passes pension takeover

The Argentine congress has given the final approval needed for a state takeover of $24bn in private pension funds.  Senate voted 46-18 to back the measure late on Thursday and will now be sent to Cristina Kirchner, the president, for her signature. Kirchner announced her intention to nationalise 10 bank-owned pension funds last month saying it would protect people from the effects of the global credit crisis.  "This is a day of redress for the workers and retirees of this country," Carlos Tomada, the labour minister, said. "It's a cultural change. The measure returns the state to its role as guarantor of social security."
Kirchner has argued that the privatisation Argentine pension funds in 1994 was responsible for "42 per cent of external debt" and played a large part in Argentina's default on its international debt obligations in 2001.  About 9.5 million workers - of whom only 3.6 million pay meaningful contributions - are covered by the affected funds which lost 17.5 per cent of their worth, about $8.1 million, between October 2007 and October 2008, according to the government. 'Precarious':  Gerardo Morales, the Social Democrat leader who voted against the measure, warned that the nationalisation bill "is precarious, impinges on privacy rights and really addresses the state's ability to deal with an eventual loan 'default'." Opponents of nationalisation have said the money from the funds could be used to pay off the national debt, which stands at about $150bn.   Argentina faces debt payments of about $20bn in 2009, only $8bn of which is accounted for in the government's financing programme.  In an attempt to counter criticism of the plan, Fernandez has agreed to create a commission that includes the political opponents to oversee how the money is invested.  Polls show that a majority of Argentines support a state-run retirement system complaining that the private schemes charge high commissions and offer lower returns.
But the move has caused panic among investors, sending Spanish stocks and Argentina's MerVal index plunging in October when it was announced.

BUENOS AIRES, Argentina (AP) - Argentina's plan to nationalize $23 billion in private pension funds might protect retirees from the international financial crisis in the short run, but will limit the benefits of an economic recovery by putting all their savings in one government-run basket, analysts say.  «Nationalizing the system will make retirement riskier in Argentina,» Olivia Mitchell, director of the Pension Research Council at The Wharton School of Business in Philadelphia, wrote in an e-mail response to questions from The Associated Press.  The move cuts off Argentines' access to investments that could bring bigger profits, instead providing them with a set amount of money every year from the government, Mitchell explained.  Argentina's planned takeover of 10 private funds, which the Senate is expected to approve Thursday night or Friday morning, has pitted those who decry the nationalization's limited offerings against those who insist pension funds need to be saved from the whims of an ever-chaotic stock market.  President Cristina Fernandez, saying pensions should not be «gambled,» sent the bill to Congress during the height of the financial crisis in late October to protect the money from markets that continue to hover below zero.  Chile provides a good example of just how risky investing in the stock market can be: The country's riskiest funds _ which in good times can bring the greatest reward _ have lost 40 percent of their value this year.  Nonetheless, analysts say Fernandez is proposing short-term solutions for a system that is based on long-term results.  The economy will eventually reboot, and it's during a recovery that Argentines may feel the pinch of a defined monthly payout from the government, said Augusto Iglesias, an economist and senior partner at the Santiago-based, pension-reform consultancy PrimAmerica SA.  Private retirement accounts, similar to 401(k)s in the U.S., allow workers to invest their own savings and to diversify into a greater variety of investments more than state-run funds usually do, offering them «a better way to protect against country risk than virtually any other vehicle,» Mitchell said.  Such protection is especially important in Argentina, still in the process of restructuring a record-setting $95 billion default in 2001.
«In times of global economic meltdown, there is no safe harbor,» Mitchell said. «But a well-diversified international investment pool is likely to be better in the long run.  Nationalizing the system «punishes risk-taking for those retirees who could get a better return on investment» in private accounts, agreed Pamela Villarreal, a senior policy analyst with the National Center for Policy Analysis in Dallas, Texas. When Argentine workers were allowed to switch between private and public pension funds last year, only 20 percent opted for the government's plan. But while there have been sporadic protests by workers worried about their future employment and rallies in support of a state-run program, Argentines have remained surprisingly reticent about the takeover.
Most have little confidence in either system: They've been spooked by a seizure of their private bank accounts during the 2001 meltdown fear and wary of profiteering private companies handling their money in a country with a historically strong state presence, said Luciana Diaz Frers, of the Buenos Aires Center for the Implementation of Public Policies for Equality and Growth