Argentina: A cautionary tale?
Given what has happened over the last few months culminating in yesterday’s bill signing ceremony, and considering all that has happened prior to that (government ownership of car companies, TARP, etc) I sure hope I don’t hear anyone trying to claim “it couldn’t happen here”:
Argentine President Cristina Kirchner announced this week that her government intends to nationalize the country’s private pension system. If Congress approves this property grab, $30 billion in individually held retirement accounts — think 401(k)s — managed by private pension funds will become government property.
Since Congress is made up of a majority of fellow leftist Peronists, passage is almost assured. Kirchner has crafted a rather unique justification for the grab:
Mrs. Kirchner justified the proposed seizure of $30 billion in pension assets by accusing the funds of having instrumented “policies of plunder.”
Of course, since she, her husband and the Peronists have been in power, the results have been far from good, but just like now, it’s the fault of something other than the government:
When the Argentine government ran out of money in 2001, it blamed the market and increased its own role in the economy. Since then it has imposed price controls, defaulted on its debt, seized dollar bank accounts, devalued the currency, nationalized businesses and tried to set confiscatory tax rates with the aim of making society more “fair.” Mrs. Kirchner and her predecessor (and husband) Nest√≥r Kirchner have also preserved the Peronist tradition of big spending.
Some of that seems vaguely familiar. Read both articles – there’s a pattern at work there that should be recognizable elsewhere. Making everything a “crisis”. Picking fights with certain industries. Interesting reading.
Meanwhile, as you might imagine, the threat of taking over the 401(k)s has had an immediate and negative impact:
The 10 pension funds, and many depositors, are threatening lawsuits. The Argentine stock market fell 10% Wednesday, on top of Tuesday’s 10% decline. Because the private pensions are big investors in local capital markets, the proposed nationalization has raised worries the government intends to tap new pension contributions for its own needs rather than invest the money in local stocks and bonds. For fragile local markets, the move compounded the impact of the global financial crisis.
The damage was even worse in Argentina’s local debt markets. Trading volume for a key local bond market, Argentina’s Open Electronic Market, was practically zero on Wednesday compared with a normal day’s turnover of about $1 billion.
Spanish companies with assets in Argentina saw their stocks hit hard amid concerns there might be further nationalizations. Shares of oil company Repsol YPF SA fell 16%, while Spanish banks Banco Bilbao Vizcaya Argentaria SA and Banco Santander SA slid more than 9% each.
On Wednesday, the Toronto credit rating agency DBRS downgraded Argentina’s long-term local currency securities ratings, saying the pension nationalization amounted to “confiscation of personal assets and an infringement of property rights.” The agency said the seizure might allow Argentina to meet “its near-term financing needs more easily,” but criticized “the use of pension-fund assets for financing purposes as damaging to government credibility.”
The why? Well the reason for the grab is Argentina is “facing a $10 billion shortfall in what is due on government debt by the end of 2009.”
$10 billion due on debt? And no money available. Obviously they’re not able, like some countries, to borrow it since they’ve already defaulted once fairly recently. So, as is often the case, the citizen’s assets and priorities take second place to the government – if the government is willing to use its guns (under the very thin veneer of “law”) to take those assets and make those priorities secondary. And, apparently, in Argentina, the government is.
But with our minimal debt, projected 10 year government budget and bond rating problems, that could never happen here, could it?