Wednesday, October 22, 2008
Wasn't it just a few years ago that Argentina was thumbing their nose at the IMF, asserting their independence after a tumultuous period in the 1990s, serving as something of a model for other South American countries?
What's this with nationalizing private pension funds?
Amid all the other dreary financial news today, this story is easy to miss. The government of Argentina announced it would nationalize almost $30 billion in private funds, purportedly to protect recipients from the vagaries of the stock market during the never-ending financial crisis, but also maybe to help pay some bills that will soon be due.
This New York Times report has the details:
The measure, confirmed in a speech in Buenos Aires late Tuesday by Cristina Fernández de Kirchner, Argentina’s president, was criticized by political opponents and analysts as a move to shore up government coffers to try to head off a fiscal crisis in 2009, when Argentina might be struggling to make billions of dollars in debt payments.Oh...
It may be the first time a Latin American government has expropriated cash. The move is expected to give the government breathing room as falling commodity prices drive down tax revenue from agriculture by as much as $6 billion next year, according to some estimates. Commodity prices have fallen as fears of a global slowdown have grown.
Argentina’s precarious fiscal situation predated the global financial crisis.
Well, aside from last year' election that saw the President's wife get voted in, the huge strike earlier this year, and the many stories about how cheap real estate is there, there hasn't been a whole lot of news about Argentina cross my desk.
Apparently, they're not such a good model any more.
While the Times report seems to get all the facts out on the table in workman-like fashion, Ambrose Evans-Pritchard over at the Telegraph has a few different, more inflammatory thoughts on recent developments:
Here is a warning to us all. The Argentine state is taking control of the country's privately-managed pension funds in a drastic move to raise cash.I'd be leery of buying any real estate in those parts.
Should we worry about our pensions?
It is a foretaste of what may happen across the world as governments discover that tax revenue, and discover that the bond markets are unwilling to plug the gap.
My fear is that governments in the US, Britain, and Europe will display similar reflexes. Indeed, they have already done so. The forced-feeding of banks with fresh capital - whether they want it or not - and the seizure of the Fannie/Freddie mortgage giants before they were in fact in trouble (in order to prevent a Chinese buying strike of US bonds and prevent a spike in US mortgage rates), shows that private property can be co-opted - or eliminated - with little due process if that is required to serve the collective welfare. This is a slippery slope. I hope Paulson, Darling, and Lagarde tread with great care. I do not expect Steinbruck to tread with any care.