President Cristina Fernández de Kirchner’s bill to nationalise pension plans received final approval from the Argentine senate on 20th November when it was passed as official law.
Kirchner’s government will now manage US$30bn in private pension funds, a presidential proposal slimly approved by congress’ lower house on 7th November after 14 hours of rigorous debate.
The ten AFJPs (Retirement and Pension Funds Administrators) in Argentina created in 1994 constituted the country’s largest institutional investors. The controversial new bill has shaken the stock market and caused an 11% slump in shares, sending the value of the peso plummeting.
Conservative Peronist president Carlos Menem created the private pensions system. The current president argues that this decision was followed by a 10% recession. Last year, then-president and husband of current president, Néstor Kirchner, altered the law so that workers could move freely between the private system and the public system (beforehand a worker could only choose at the start of their working life).
Use of the funds
President Cristina Fernández de Kirchner officially plans to use the money to sustain Argentina throughout the current global economic crisis. She also insists that the new unified system will protect future pensioners with funds previously in AFJPs from the volatility of the “intangible markets” that the ten organisations had invested money in.
But many critics question what exactly Kirchner plans to spend the money on. The government’s stance seems ambiguous to many. Kirchner’s claim that the new funds will only be used for social security and investments in Argentine infrastructure has been subject to much doubt.
In an interview on Argentine terrestrial television news channel C5N, the president defended her decision to ‘protect’ her people, denouncing measures taken by more economically developed countries. “We are making this decision in an international context in which the leading countries in and out of the G8 are protecting their banks, while we are protecting our retirees and workers”.
ANSES vs AFJPs
The National Social Security Administration (ANSES) has now taken over the funds. The head of the governmental organisation, Amado Boudu, triumphs that the “failed experiment” of private pension funds “charging high commissions for low returns with a lack of a guaranteed minimum income” started 14 years ago was over. For these reasons, many with a centre-left stance, including union leaders, support the new law.
But Boudu himself has something of a shady past, leading to further public distrust in the government. He was accused of embezzling $20m from an accommodation plan that never came into fruition: the commissioned houses were never built. Before that, under his direction the company Venturino SA (an agricultural machinery dealer, also a John Deere concessionary) went bankrupt.
Administrators of the ten AFJPs call their system a “solid mechanism with an almost constant growth trend in the 14 years of its existence”. There were three million contributors but only 450,000 pensions being paid out, so pensioners were receiving high returns.
On the other hand, since the creation of the AFJPs, $96bn has been saved towards pensions yet an astronomical $36bn have been spent in ‘administration fees’, causing many to ask whose corruption is worse, that of the private sector or that of the government.
Debt repayments have gone unmentioned; causing international scepticism amongst Argentina’s many previously deceived debtors.
Global financial markets are concerned of a repeat of Argentina’s 2001 debt payment default where Argentina evaded US$95bn in debt, the biggest such default in history. Argentina’s current debt payments are due in the second half of 2009, the distant future in political terms, and there are suspicions that the funds will be used next year to win mid-term elections.
Kirchner’s government has required the AFJPs to repatriate all money invested abroad. Around US$200m of pension fund assets is currently held in the US.
US district judge Thomas Griesa has extended the freeze of Argentina’s transfer of its pension fund investments out of the US as lawyers for bondholders hold a US$553m judgment against Argentina, requiring to know where assets are held in the US and by whom.
Griesa worries of a “threat of irregular behaviour by Argentina” and is “concerned that Argentina will move the assets into its general treasury”. He added: “I don’t want to wake up next Friday, after some legislation, and find 200 million dollars has been shipped out of New York.”
Oliver Armas, a Cuban-North American lawyer for eight of the ten AFJPs, and Jonathan Blackman, a lawyer for Argentina, opposed the extension of the freeze order. Armas insisted that “the assets belong to future Argentine retirees, not the government. Therefore it is the people losing out, not the state.”
Lack of governmental confidence
The press secretary of the PAMI, (Integral Medical Attention Programme), the non-governmental organisation protecting the social security interests of Argentine pensioners, says that these criticisms spring from distrust in the “greedy and corrupt governments” Argentina has suffered under in the past.
President Kirchner has held office for less than a year and has thus far proved extremely unpopular due to growing inflation and some controversial propositions which have gone on to be rejected by members of her party as well as the public itself.
The Campo Crisis earlier this year saw public confidence in Kirchner take a nose-dive; especially when her own vice president Julio Cobos voted against her bill to increase tax on agricultural produce exports.
Kirchner’s plan for a ‘tren bala’ (bullet train) to connect Argentina’s three largest cities (Buenos Aires, Rosario and Córdoba) was also received by numerous protests nationwide, particularly from disgruntled commuters who could not even count on a reliable suburban service from regular trains.
Problems even surface amongst those for nationalisation. María América González, opposition lawmaker and supporter of the new bill, has “serious doubts about how the funds will be managed. The government’s stance just seems a little ambiguous to me”.
Conservative daily La Nación called Kirchner’s move “legalised robbery”. Socialists and radicals who have been opposing private pensions all along have been left in an odd position. The rebel Peronists are a ‘workers party’ and the decision is a win-win situation for the working class. Therefore, many critics consider the move an attempt to win political support from the various branches.