NCPA - National Center for Policy Analysis

ARGENTINA NATIONALIZES PENSIONS

October 28, 2008

Argentina has announced that the state will "protect" private pensions from "policies under plunder" by proposing to take them over.  But this socialization of savings represents a major dismantling of 14 years of privatization and individual rights, reforms that ended years of hyperinflation and dictatorship, says Investor's Business Daily.

Starting in 1994, Argentineans could choose to save for retirement through a private account that let them make investment decisions based on their retirement needs.  However, under the ruse of "protecting" Argentines from their own decisions, everyone will soon be forced into an involuntary pay-as-you-go program; not only will the private assets be managed by bureaucrats, pension holders will be paid what the government dictates.

Since the announcement:

  • In 2 days, the Argentinean stock market lost 23 percent of its value, for a 57 percent loss since January. The losses spread to other markets in Brazil, South Africa and Spain.
  • Assets are likely to be spent by government - not invested; it will save the government about $3.2 billion in interest payments since the government won't pay interest on $16 billion of government bonds in pension assets that it would own.
  • The Argentine Congress says it will ensure that assets are used for the pensions, but with money fungible and Argentine fiscal transparency weak, it's an easily skirted requirement.
  • Right now, markets see the pension grab as a sign of governmental insolvency following a 40 percent surge in spending this year in socialist redistribution schemes, and amid a political climate of blaming businesses.

Moreover, nationalization may pay the bills now, but it poisons prospects for growth.  For that reason, Argentina's sovereign bonds now trade at 25 cents to the dollar and yield 30 percent. 

Source: Editorial, "Argentina Spreads The Wealth," Investor's Business Daily, October 23, 2008.

 

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