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Argentine Senate Approves Pension Plan Takeover
By THE ASSOCIATED PRESS
Published: November 20, 2008
Filed at 10:03 p.m. ET
BUENOS AIRES, Argentina (AP) -- Argentina's Senate approved on Thursday a state takeover of $23 billion in private pension funds, a move that analysts say could protect retirees from short-term stock market chaos but also limit their long-term retirement income.
Senators voted 46-18 in favor of the nationalization after nearly 12 hours of debate, bringing an end to a 14-year-old pension system created during a wave of privatizations throughout Latin America.
With Congress' lower house having already approved the bill, only President Cristina Fernandez's signature is needed to make it law and this is a considered a given since she proposed the stateover, arguing it would protect retirees' funds from market fluctuations amid the global financial crisis.
Senate budget commission leader Fabian Rios said the private pension system ''failed'' because it was designed for developed economies where citizens can afford large investments in their retirement.
''This is a day of redress for the workers and retirees of this country,'' said Labor Minister Carlos Tomada. ''It's a cultural change. The measure returns the state to its role as guarantor of social security.''
But critics have called it a money grab by a government that faces huge debt payments and upcoming congressional elections.
''We have no doubt that this violates the right to private property. There has been a clear confiscation here that not only affects us, but society and the world,'' said opposition Sen. Ernesto Sanz.
Analysts say the plan is a mixed bag that will protect retirees in the short term but could hurt them in the long run.
''Nationalizing the system will make retirement riskier in Argentina,'' Olivia Mitchell, director of the Pension Research Council at The Wharton School of Business in Philadelphia, wrote in an e-mail response to questions from The Associated Press.
The move cuts off Argentines' access to investments that could bring bigger profits, instead providing them with a set amount of money every year from the government, Mitchell explained.
Chile provides a good example of just how risky investing in the stock market can be: The country's riskiest funds -- which in good times can bring the greatest reward -- have lost 40 percent of their value this year.
But the economy eventually will reboot, and it is during a recovery that Argentines may feel the pinch of a defined monthly payout from the government, said Augusto Iglesias, an economist and senior partner at the pension-reform consultancy PrimAmerica SA in Santiago, Chile.
Private retirement accounts, similar to 401(k)s in the U.S., allow workers to invest their own savings and to diversify into a greater variety of investments more than state-run funds usually do, offering them ''a better way to protect against country risk than virtually any other vehicle,'' Mitchell said.
Such protection is especially important in Argentina, still in the process of restructuring a record-setting $95 billion default in 2001.
''In times of global economic meltdown, there is no safe harbor,'' Mitchell said. ''But a well-diversified international investment pool is likely to be better in the long run.''
Nationalizing the system ''punishes risk-taking for those retirees who could get a better return on investment'' in private accounts, agreed Pamela Villarreal, a senior policy analyst with the National Center for Policy Analysis in Dallas, Texas.
When Argentine workers were allowed to switch between private and public pension funds last year, only 20 percent opted for the government's plan.
But while there have been sporadic protests by workers worried about their future employment and rallies in support of a state-run program, Argentines have remained surprisingly reticent about the takeover.
Most have little confidence in either system: They've been spooked by a seizure of their private bank accounts during the 2001 meltdown fear and wary of profiteering private companies handling their money in a country with a historically strong state presence, said Luciana Diaz Frers, of the Buenos Aires Center for the Implementation of Public Policies for Equality and Growth.
http://www.nytimes.com/aponline/worl...ion-Funds.html
Filed at 10:03 p.m. ET
BUENOS AIRES, Argentina (AP) -- Argentina's Senate approved on Thursday a state takeover of $23 billion in private pension funds, a move that analysts say could protect retirees from short-term stock market chaos but also limit their long-term retirement income.
Senators voted 46-18 in favor of the nationalization after nearly 12 hours of debate, bringing an end to a 14-year-old pension system created during a wave of privatizations throughout Latin America.
With Congress' lower house having already approved the bill, only President Cristina Fernandez's signature is needed to make it law and this is a considered a given since she proposed the stateover, arguing it would protect retirees' funds from market fluctuations amid the global financial crisis.
Senate budget commission leader Fabian Rios said the private pension system ''failed'' because it was designed for developed economies where citizens can afford large investments in their retirement.
''This is a day of redress for the workers and retirees of this country,'' said Labor Minister Carlos Tomada. ''It's a cultural change. The measure returns the state to its role as guarantor of social security.''
But critics have called it a money grab by a government that faces huge debt payments and upcoming congressional elections.
''We have no doubt that this violates the right to private property. There has been a clear confiscation here that not only affects us, but society and the world,'' said opposition Sen. Ernesto Sanz.
Analysts say the plan is a mixed bag that will protect retirees in the short term but could hurt them in the long run.
''Nationalizing the system will make retirement riskier in Argentina,'' Olivia Mitchell, director of the Pension Research Council at The Wharton School of Business in Philadelphia, wrote in an e-mail response to questions from The Associated Press.
The move cuts off Argentines' access to investments that could bring bigger profits, instead providing them with a set amount of money every year from the government, Mitchell explained.
Chile provides a good example of just how risky investing in the stock market can be: The country's riskiest funds -- which in good times can bring the greatest reward -- have lost 40 percent of their value this year.
But the economy eventually will reboot, and it is during a recovery that Argentines may feel the pinch of a defined monthly payout from the government, said Augusto Iglesias, an economist and senior partner at the pension-reform consultancy PrimAmerica SA in Santiago, Chile.
Private retirement accounts, similar to 401(k)s in the U.S., allow workers to invest their own savings and to diversify into a greater variety of investments more than state-run funds usually do, offering them ''a better way to protect against country risk than virtually any other vehicle,'' Mitchell said.
Such protection is especially important in Argentina, still in the process of restructuring a record-setting $95 billion default in 2001.
''In times of global economic meltdown, there is no safe harbor,'' Mitchell said. ''But a well-diversified international investment pool is likely to be better in the long run.''
Nationalizing the system ''punishes risk-taking for those retirees who could get a better return on investment'' in private accounts, agreed Pamela Villarreal, a senior policy analyst with the National Center for Policy Analysis in Dallas, Texas.
When Argentine workers were allowed to switch between private and public pension funds last year, only 20 percent opted for the government's plan.
But while there have been sporadic protests by workers worried about their future employment and rallies in support of a state-run program, Argentines have remained surprisingly reticent about the takeover.
Most have little confidence in either system: They've been spooked by a seizure of their private bank accounts during the 2001 meltdown fear and wary of profiteering private companies handling their money in a country with a historically strong state presence, said Luciana Diaz Frers, of the Buenos Aires Center for the Implementation of Public Policies for Equality and Growth.
http://www.nytimes.com/aponline/worl...ion-Funds.html
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