Argentina President Moves to Nationalize Pensions

The proposal, which must be approved by the country’s legislature, was signed by Ms. Kirchner, along with Labor Minister Carlos Tomada and Amando Boudou, the head of the national social security system, ANSES, according to the Wall Street Journal.

The New York Times says that under the plan all the assets in individual accounts would be transferred to the state’s “pay as you go” system, and affiliation to the state system would be mandatory, effectively putting an end to the current dual system.   “While the U.S. and other countries are stepping in to rescue their banks, Argentina must protect our retirees,” Fernandez said as she signed a nationalization bill that now goes to Argentina’s Congress, where her Peronist party has a ruling majority, though opposition leaders have vowed to contest the proposal.

Rescuing Retirees?

The Wall Street Journal says that an announcer during the televised signing ceremony described it as a project to “eliminate” the “capitalization system,” a reference to the defined-contribution plans run by 10 private funds known as AFJPs.   In a speech following the signing ceremony, Boudou said the reform would “rescue Argentine retirees from uncertainty.”   The proposal would reportedly shift about $30 billion in assets from the administrative oversight of the ten private pension funds (eight of the ten are controlled by private banks, one is a cooperative and another is controlled by state-owned Banco Nacion).

The proposal triggered a steep drop on Argentina’s stock market (Argentina’s benchmark Merval index fell by more than 11%) after it was disclosed by union officials and reported in the Argentine press.  The WSJ cites economists that said the underlying motive would be to provide the government with about $5 billon in annual pension contributions – that it needs to closed a gap in financing next year and avert a debt default.  

Ahead of the Kirchner announcement, a federal judge ordered the country’s pension funds to halt all “modifications to their portfolios” of stocks and bonds over the next seven days.

Argentina established the private pension funds in 1994, under conservative president Carlos Saúl Menem. Workers had the choice of going into the new system or staying in a revamped state system.