(Adds cabinet chief comment, background)
By Helen Popper
BUENOS AIRES Oct 21 Argentina's center-left
President Cristina Fernandez on Tuesday signed a bill for a
government takeover of the $30 billion private pension system
in a daring and unexpected move that rocked domestic markets.
Labor leaders and lawmakers from the ruling Peronist party
and some opposition groups applauded the nationalization as a
way to guarantee pensions at a time of global market turmoil.
But the surprise move unnerved investors and sent Argentine
stock and bond prices into freefall.
Critics said the government was looting pension funds ahead
of a tough budget year when it has to find billions of dollars
to pay and service debt, but the president said the private
pension fund administrators were the looters.
"These were looting policies," Fernandez said of the
private system in a ceremony at the government's National
Social Security Administration, or ANSES, which will take over
Congress, which is controlled by Fernandez allies, will
debate the bill next week.
"The failed experiment" of private pensions is finished,
ANSES Director Amado Boudou said at the ceremony with
Fernandez, before hundreds of political supporters.
The reform took Argentina's 10 pension fund administrators,
known as AFJPs, by surprise and an industry group decried
government claims that the funds had performed badly.
"The AFJP system is a solid mechanism that can be
perfected, that has had an almost constant growth trend in the
14 years of its existence," Sebastian Palla, president of the
Union of Argentine Retirement and Pension administrators, said
in a statement.
International banks and insurance groups BBVA (BBVA.MC),
HSBC Holdings (HSBA.L), MetLife Inc (MET.N), and ING Groep NV
ING.AS (ING.N) are among the companies that run the funds.
Earlier in the day, Argentina's benchmark MerVal stock
index .MERV plunged 10.99 percent to a four-year low on news
of the takeover of the country's biggest institutional
"This is a major blow to the country's already isolated
capital markets, with the negative implications of economic
growth and investment this entails," wrote Latin America
analyst Daniel Kerner of Eurasia Group consulting group.
Prices for Argentine's 2033 discount bond sank 4.56 points
to a bid/ask of 32.063/34.313 ARGGLB33=RR, a level that
implies a risk of default, as offers greatly outnumbered bids.
However, the government may have reduced any risk of
default on its debt because the takeover of pensions is seen as
strengthening its ability to make debt payments next year.
Argentina's debt obligations in 2009 are estimated to rise
to $12 billion, but the global financial crisis has dashed any
plans to go to international markets to issue new bonds.
Economists said more than $4 billion a year in
contributions to pension funds would ease government financing
needs in 2009, when the government faces mid-term elections.
Public spending has historically risen in election years.
Cabinet Chief Sergio Massa said the government pensions
administration would maintain the funds' investment portfolios,
which are mostly in Argentine government bonds and local
stocks. Last year the government had restricted the pension
funds' investments in overseas assets.
A federal prosecutor accused the funds of illegally selling
government bonds as news of the reform spread and a judge
banned all the funds from trading on the Buenos Aires Stock
Exchange for seven working days.
The private pension system has been unpopular among some
Argentines due to high commissions and because there is not a
guaranteed minimum pension.
The center-left government of Fernandez and her husband and
predecessor Nestor Kirchner has gradually taken greater control
of the economy, reversing some privatizations and free-market
reforms of the 1990s.
When Argentina privatized pensions in 1994, many other
Latin American countries were doing the same. The private
pension system survived the deep economic and political crisis
of 2001-2002 when Argentina defaulted on $100 billion in debt.
Despite a long history of pension funds being ransacked by
governments looking for ready cash, more than a million people
chose to return to the Argentine state system last year under
the government's last pensions overhaul.
Many Argentines are just fed up with all the changes:
"What happens in Argentina is that every day we wake up and
there's a different law," said Irene Morganti, 77, a member of
a club for pensioners in the Martinez suburb of Buenos Aires.
"We have the uncertainty that we don't know if we're going
to stay with one system or the other and really, both have
failed," she added.
(Additional reporting by Cesar Illiano and Walter Bianchi;
Writing by Fiona Ortiz; Editing by James Dalgleish and Leslie