Wednesday, October 22, 2008
BUENOS AIRES, Argentina (AP) — President Cristina Fernandez proposed a government takeover of nearly $30 billion in private pension funds Tuesday, saying retirees must be protected from the global financial crisis.
But her move spooked investors and triggered steep falls in Argentine stocks and bonds.
“While the U.S. and other countries are stepping in to rescue their banks, Argentina must protect our retirees,” Fernandez said as she signed a nationalization bill that now goes to Argentina’s Congress, where her Peronist party has a ruling majority.
Fernandez said she’s required by the constitution to guarantee pensions. And Amando Boudo, executive director of the national social security administration, said “the government’s only motivation to carry out this measure was to rescue our future and current pensioners from uncertainty.”
But her political opponents called it a naked scramble for cash to prop up falling tax revenue, and financial analysts said the plan puts property rights at risk.
“It tells the market that the government thinks it can change the rule of the game whenever its wants, which has caused Merval to fall, while the rest of the world remains steady,” said Camilo Tiscornia, an economist with the Buenos Aires consultancy Castiglioni, Tiscornia y Asociados.
Investors fled Argentine stocks and bonds.
The Buenos Aires’ Merval index recuperated to close at 10.99 percent to 1,047, after dropping more than 13 percent in midday trading. Benchmark Argentine bonds fell by an average of 7 percent, fueling the country risk measured by JP Morgan’s EMBI+ index to 1,604 basis points.
The 10 private companies that manage the funds were banned from trading on the Buenos Aires Stock Exchange for seven working days by federal Judge Claudio Bonadio, who said their dumping of bonds and stocks provoked the sharp drop in Merval on Tuesday and amounts to “fraudulent mismanagement,” according to the official news agency Telam.