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| Argentine Lawmakers Plan Curbs on Government Use of Pensions |
| Argentina, 23.10.2008 |
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| By Bill Faries and Eliana Raszewski
Oct. 23 (Bloomberg) -- Argentine lawmakers will try to block the government's use of $29 billion in nationalized pension assets to repay debt when they consider President Cristina Fernandez de Kirchner's plan to seize the funds from private money managers.
Opposition deputies said the legislation probably will pass and the debate will focus on limiting how the government uses and invests the money. The social security committee in the lower house may take up the bill as soon as Oct. 27, lawmaker Juan Acuna Kunz said in an interview.
Speculation that Fernandez intends to finance the government with the now-private funds has roiled Argentina's markets. Stocks had their biggest two-day drop yesterday since 1990 and dollar bond yields topped 30 percent on concern the takeover is a last-ditch attempt to avert the country's second default this decade.
``The government isn't really thinking about the consequences of this, especially in terms of investment and its credibility,'' former Economy Minister Roberto Lavagna said in an interview with Bloomberg Television.
Congress will seek to weaken the president's control of the panel that oversees pensions by giving a majority of its seats to opposition parties, workers and retirees, said opposition Senator Gerardo Morales, head of the social security committee. He said he also wants Congress to repeal the so-called ``superpowers'' the president has to spend excess revenue without lawmakers' approval.
Illegal Plan
``The government is trying to avoid having to pay interest on bonds and they want to find more money for public works,'' Esteban Bullrich, a congressman of the opposition Pro Party, said in a telephone interview in Buenos Aires. ``We see this plan as illegal.''
Fernandez, 55, is counting on her majority coalition in Congress to pass the measure, and sought to expand support by saying she wants a committee of 12 lawmakers to help oversee the funds' management. The coalition, built by Fernandez and her husband, former president Nestor Kirchner, weakened this year as Congress refused to back her decree raising export taxes on farm goods and held up plans to nationalize the country's biggest airline.
Fernandez announced her plan to take over 10 private pension funds during a speech yesterday in Buenos Aires. She said the proposal would protect retirees from the global financial crisis and denied trying to ``grab the cash'' to pay off debt or finance new programs or projects. The last time Argentina sought to tap workers' savings was in 2001, just before it halted payments on $95 billion of bonds.
Stocks, Bonds
Stocks, bonds and the currency have plunged since Oct. 20 on concern the proposed pension takeover is aimed at meeting financing needs that have swelled as prices for the country's commodity exports tumbled, eroding tax revenue.
Argentina hasn't had access to international debt markets since its 2001 default and demand for its peso bonds has dried up on concern the government is underreporting the rise in consumer prices. That prompted Argentina to rely on about $8.4 billion in loans from Venezuela since 2005.
``Venezuela was Argentina's last resort,'' said Enrique Alvarez, an economist at IDEAglobal Inc. in New York.
The country's private pension plans held about 52 billion pesos ($16 billion) worth of Argentine government bonds as of Sept. 30, according to the pension fund regulator.
Bond Owner
Under Fernandez's plan, the government will be the owner of its own bonds. The move would save the government about $3.5 billion in payments to the private funds next year, in addition to giving it about $4.5 billion in annual contributions, said Javier Kulesz at UBS Pactual in Buenos Aires.
``In taking over these companies the state is on both sides of the table -- it's a creditor and debtor at the same time,'' Lavagna said.
Fernandez described the takeover as a ``rescue'' for 9 million Argentines who maintain individual accounts managed by banks including London-based HSBC Holdings Plc and Spain-based Banco Bilbao Vizcaya Argentaria SA. The funds lost 2.25 percent in September from a year earlier. The private funds invested an average of 55 percent of their funds in bonds and 11 percent in stocks as of September, according to the Web site of the pension fund regulator.
``This is going to open two debates,'' said Buenos Aires-based pollster Felipe Noguera. ``One will be on how to fund the public sector and the second on what to do with the pension funds.''
Borrowing Needs
Government spending rose 40 percent to 19.8 billion pesos in August from a year earlier. Tax revenue rose 36 percent to 24.2 billion pesos over the same period. Argentina's borrowing needs will swell to as much as $14 billion next year from $7 billion in 2008, RBC Capital Markets, a Toronto-based unit of Canada's largest bank, said yesterday, spurred in part by the need to refinance maturing debt.
To contact the reporters on this story: Bill Faries in Buenos Aires at wfaries@bloomberg.net; Eliana Raszewski in Buenos Aires eraszewski@bloomberg.net
Oct. 21 (Bloomberg) -- Argentine President Cristina Fernandez de Kirchner, grappling with a financial crisis that has frozen access to credit, will propose an overhaul of the pension system that may give the government control of $29 billion in privately run retirement accounts.
Fernandez will unveil her plans at 4 p.m. New York time today, the country's social security administration said in an e-mailed statement. Argentina's benchmark Merval stock index fell to its lowest level in four years yesterday, as other Latin markets gained, after published reports said the government will take over 10 privately run pension funds.
``This is negative, very negative, for the markets,'' said Mariano Tavelli, a portfolio manager at Tavelli & Compania in Buenos Aires. ``It's going to cause a sharp drop in confidence in the country and this government.''
Fernandez has struggled to find new sources of funding for the government since the global financial crisis complicated efforts to renegotiate $20 billion in defaulted bonds and pay off about $6.7 billion owed to the Paris Club group of creditors. The country hasn't had access to international debt markets since defaulting on $95 billion of bonds in late 2001.
La Nacion newspaper said Fernandez will announce a nationalization of the social security system, citing government officials it didn't identify. The social security administration didn't provide details on the event. The press offices at the presidential palace and the pension fund regulator declined to comment when contacted by Bloomberg News.
Pension Funds
Argentina began tightening restrictions on private pension funds last year, requiring them to keep more investments in the country to sustain economic growth. At the same time, the government allowed citizens the opportunity to move their money from the privately run funds that offered individual accounts to a government-managed fund that promised a set pension, helping shore up government revenue.
The private accounts were created in 1994 with the aim of gradually phasing out the government-run system. Nationalization of the accounts would probably require congressional approval, analysts said.
``When you change rules, foreign investors flee,'' said Greg Lesko, who helps oversee $900 million at Deltec Asset Management Corp. in New York. ``I have a hard time believing people will look at that and say this is a serious country.''
Soaring Yields
The yield on Argentina's 8.28 percent benchmark bonds maturing in 2033 has jumped 11.6 percentage points since Sept. 1 to 22.83 percent as of 8:23 a.m. New York time, according to data compiled by Bloomberg. The bond's price has fallen by more than half to 32.1 cents on the dollar, the lowest since the government issued the securities as part of the 2005 restructuring. The yield today jumped 242 basis points, or 2.42 percentage points.
Argentina's private pension fund administrators, known as AFJPs, managed 94.4 billion pesos ($29.3 billion) in savings at the end of September. About 55 percent of the investments are in government debt, according to information on the Web site of the pension fund regulator.
AFJPs were net buyers of stocks for a third straight month in September, investing about $144 million in domestic equities, according to Deutsche Bank AG. They have $4.1 billion invested in domestic stocks, or about 13 percent of their total holdings, strategist Guilherme Paiva wrote in an Oct. 15 research note.
``The market is saying that if the state can take control of the AFJPs, a buyer of stocks would cease to exist,'' said Juan Jose Vasquez, head of research at Bull Market Brokers in Buenos Aires.
Debt Obligations
The move could provide the government with financing needed to avert default as debt obligations grow next year, Siobhan Morden, a Latin America debt strategist with Royal Bank of Scotland in New York, said in an interview.
The government's borrowing needs will climb to $11.2 billion next year from $6.6 billion in 2007, Credit Suisse said in an Oct. 8 report.
Fernandez is seeking to regain access to international capital markets by renegotiating defaulted debts as slowing growth in South America's second-biggest economy and tumbling commodity exports cut into tax revenue. The UBS Bloomberg CMCI Index of 26 raw materials has plunged 39 percent from a record high reached on July 2. Commodities account for more than half of Argentine exports.
A bid by Fernandez to generate more revenue with higher taxes on agricultural exports sparked a four-month farmers' strike that forced her to withdraw the proposal in July.
``Desperate times bring desperate measures,'' Morden said.
By Bill Faries and James Attwood
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