NEW YORK, Oct 23 (Reuters) - Argentina’s plan to nationalize its private pension funds should make it easier for the government to refinance short-term obligations but would further undermine its credibility among investors, Moody’s Investor Service said on Thursday.
Argentina’s president Cristina Fernandez unveiled on Tuesday a plan to take over the $30 billion in funds managed by its 14-year-old private pension system, saying she seeks to protect pensions from the global market crisis.
“Although the proposal, if approved, would provide the government with greater financial flexibility in the short term, it undermines the government’s already weak policy credibility and adds to negative perceptions about Argentina’s institutional integrity — particularly governance and respect of contracts,” Moody’s analyst Mauro Leos said in a statement.
The move would boost the government’s annual revenue by 1 percent of gross domestic product as contributions of the private pension participants are brought into the national budget, Moody’s said.
With higher revenues, the government will be tempted to delay a needed adjustment in public spending, which is on an “unsustainable path,” Leos warned.
“The pension proposal appears to be a short-term fix to a long-term problem,” Moody’s said in the statement.
However, Argentina’s “B3” credit ratings would not be immediately affected by the pension system takeover because they are already one of the lowest among emerging-market countries, Moody’s said.
A negative rating action, it added, would only be appropriate “if and when Argentina’s already high default risk is judged to have increased significantly.” (Reporting by Walter Brandimarte; Editing by James Dalgleish)