Hemmed in by the global financial squeeze and commodities slump, Argentina's leftist government has seemingly found a novel way to find the money to stay afloat: cracking open the piggybank of the nation's private pension system.
The government proposed to nationalize the private pensions, which would provide it with much of the cash it needs to meet debt payments and avoid a second default this decade.
Argentine President Cristina Kirchner said the move to take over the private pension system was aimed at protecting investors from losses resulting from global market turmoil. Funds in the system, which is parallel to a government pension system, are administered by financial firms. The private system has about $30 billion in assets and generates about $5 billion in new contributions each year.
While no one knows for sure what the government would do with the private system, economists said nationalization would let the government raid new pension contributions to cover short-term debts due in coming years.
This sort of thing is fairly predictable since government is relatively awful at just about everything other than making rules and enforcing (some of) them. In this case, government has an abysmal record of saving (much less spending on budget), primarily because it always needs more cash to dole in out in exchange for campaign support and votes. Meanwhile, the private sector is actually pretty good at saving because, well, individuals know they need to pay for their ability to feed, house and clothe themselves when they are too old, among other reasons (e.g. the dreams of the "Joe the Plumbers" of the world). So when the successful savers amass a big pile of cash, and the spendthrifts with force of law have the big guns, a raid is inevitable.
And what will Argentinians be giving up?
The private pension system was created as an alternative to state pension funds in 1994, when conservative President Carlos Saúl Menem ran Argentina and free-market policies were in vogue in Latin America. Countries in the region followed the example of Chile, which had privatized pensions in 1981. In Argentina, workers have the option of paying into individual retirement accounts run by pension funds rather than the government.
Three million Argentines do so. They can track their accounts and have some say over how the pension funds invest the money, making the system somewhat like U.S. 401(k) accounts. After a nationalization, it's presumed the government-run system would absorb the private funds.
The Latin American system has helped create a large pool of domestic savings that can fund local capital markets and lend money for projects like toll roads. In Argentina, Mexico and Chile, pension funds are among the biggest players in local stock markets, helping young companies get access to capital.
The main Merval Argentine stock index tumbled 12% on Tuesday, largely on fears that the market would atrophy if the government used new pension contributions to pay debt rather than let it go into the capital markets.
The head of the Argentine association of private pension funds, Sebastian Palla, blasted the government step. He said that since their 1994 inception, the funds have had a 13.9% average annual return.
If Democrats are boldly proclaiming to implement the same sorts of confiscatory policies as the leftist government of Argentina before the election, what do you suppose they will do if they achieve the dream scenario of an Obama presidency, a filibuster-proof majority in the Senate, and a dominant majority in the House? I shudder to think.
I’ve said for years that I’m not counting too much on my 401k: as soon as the gubmint decides that they need that money more than I do, they’ll take it. Oh, they’ll call it an "investment", but I don’t expect to get anything back.
I’m years from retirement, but it never hurts to start planning. Can anybody recommend a good brand of cat food?
Sad but true, Bithead. I’ve been wondering how soon after Obama takes over will he get around to that, and which he’ll outlaw first: guns or gold. I guess if you’ve got the money get’ em now, don’t leave a paper or cyber trail, and hide ’em. Hide ’em good.
Huh? Tell me more, my mattress is getting a little lumpy.
Yeah, I noticed that too. Maybe it doesn’t account for inflation? Whatever it really is, it’s still doing better than the government which is perpetually bankrupt, and would be forced to pay significant rates to borrow thanks to past financial shenanigans.