Argentine Senate set to pass pensions takeover law

By Helen Popper

BUENOS AIRES, Nov 20 (Reuters) - Argentine senators were expected on Thursday to approve a state takeover of $24 billion in private pension fund assets, a government plan that raised investor concerns about the nation's ability to pay its debts.

Approval of the pensions nationalization would be a timely political victory for center-left President Cristina Fernandez as she seeks to bolster her eroded popularity ratings ahead of mid-term elections in 2009, a tight financing year.

There is widespread support for the nationalization among ordinary Argentines, despite concern over how the government will use the funds, and senators look set to pass it comfortably following its easy passage in the lower house.

"It's going to be passed with more than 42 or 43 votes. Today we're going to have the law," ruling party Sen. Jose Pampuro told local radio. The vote in the 72-seat chamber was not expected until late on Thursday or possible after midnight.

The pensions plan sent local debt and stock markets into free fall when Fernandez announced it unexpectedly last month, with critics branding it a desperate bid by the government to get its hands on fresh funds and even avert a debt default.

Latin America's No. 3 economy has racked up five years of sizzling growth, but the global financial crisis is slowing the boom and the government faces mounting debt obligations.

Argentina owes $20 billion in interest and principal on its debt next year, and only $8 billion of that is accounted for in the government's financing program.

CASH FLOW

Argentina's social security system has been mixed since 1994, with workers opting to steer obligatory contributions into the state system or privately administered funds.

Fernandez says the takeover of the 10 private funds, called AFJPs, is the best way to protect workers and retirees from the turmoil in financial markets. Officials point to a 20 percent slump in the value of pension fund assets in recent months.

But critics say the government just wants to boost cash flow by raiding annual pension contributions of some $4 billion, which they argue will only serve to worsen Argentina's longer-term outlook.

"This looks to me like an act of desperation," said political analyst Jorge Giacobbe.

"Next year is going to be very tricky even with the revenue from the AFJPs. It's hard because of the payments that are due, plus the global problems and the bad or nonexistent relationship the government has with the people," he added.

Fernandez's popularity ratings have been slow to recover from a bitter farming conflict earlier this year in which she suffered a stunning defeat over a tax hike on soybean exports.

The pensions takeover means the state will become the biggest institutional investor in Argentina, holding shares in some of the country's top companies, a prospect that has angered many business leaders. (Additional reporting by Lucas Bergman) (Editing by David Storey)