Argentina: Argentina's plan to nationalize its private pension system causes chaos on local markets

Argentina's surprise plan to nationalize its private pension system caused chaos on local markets on Wednesday and raised fears about a debt default, sending a ripple effect of fear about emerging-market investments into European stocks and Asian bonds, Reuters reported.

President Cristina Fernandez, who has repeatedly criticized financial markets for speculating rather than investing in real production, announced on Tuesday she would send a bill to Congress for the state to take over the USD 30 billion in funds in the 14-year-old private pension system.

Fernandez defended the plan by saying that she was rescuing pensions from the global market crisis but some investors saw the plan as a sign of desperation by a government facing billions of dollars in debt obligations next year.

The plan is likely to pass Congress and be broadly popular in Argentina, where there is broad-based suspicion of the privatizations that took place during the 1990s when free-market reforms swept Latin America.

Fernandez and her husband and predecessor Nestor Kirchner are center-leftists who maintained a fiscal surplus and foreign reserves. She is not considered as left-wing as Venezuelan President Hugo Chavez and other socialist leaders in the region, such as in Bolivia and Ecuador.

Local stocks fell nearly 18 percent while locally traded bonds dropped an average 10 percent in response to the plan's announcement as the 10 investment funds to be nationalized are the country's largest institutional investors.

"Investors are extremely panicked. People start imagining things like Nestor and Cristina can start expropriating as if it were a war," said Eduardo Blasco, economist with Maxinver business consulting firm.

"If they're going to rob my house I don't care if it's worth USD 200,000, if someone offers me USD 40,000 I take it because it's going to be stolen anyway," Blasco said.

Republished permission FOCUS Information Agency

Published by Mike Hitchen, Mike Hitchen Consulting
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