Argentina to Nationalize Pension Funds

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By Joshua Partlow and Brian Byrnes
Washington Post Foreign Service
Friday, November 21, 2008

RIO DE JANEIRO, Nov. 20 -- Argentina's Senate on Thursday night gave final approval to the government's plan to nationalize the private pension system in an attempt to protect retirement investments from the international financial crisis.

The proposal by President Cristina Fernández de Kirchner last month to nationalize about $25 billion in private pension funds provoked an outburst of criticism that the government was seizing retirement savings for cash to shore up its finances. But after 12 hours of deliberation Thursday, Fernández de Kirchner's plan was approved 46 to 18 by senators who argued that the private pension system never served the country well.

Argentina's private pension funds were created in 1994 by then-President Carlos Menem to give people the choice to opt out of the struggling public pension system.

"During its 14 years in existence, the private system never achieved what was needed. This project will permit us to undo a path of errors that were committed. It will be a difficult path, but a brave one," said Sen. Julio Miranda of Tucuman, who voted in favor of the bill.

The public system would pay out a set amount to pensioners, unlike a private system that could vacillate more widely depending on the market. The director of Argentina's social security agency, Amado Boudou, vowed to protect the value of people's investments.

"The income from the government's new system will be better than what the private pension agencies have been giving to its members," he told Argentina's America24 television on Thursday. "We have thought for a long time that the private pension system here did not function well, and when we brought this proposal to the lawmakers, we realized that we were right because the majority of them supported it."

After the proposal was announced last month, stocks in Argentina tumbled and investors dumped Argentine bonds amid fears that the nation's economy faced severe problems and could be heading toward a second debt default, such as occurred during the country's 2001 economic collapse.

"The announced nationalization-expropriation of the Argentine pension funds constitutes one of the most blatant acts of financial piracy in the country's recent history," wrote Claudio Loser, senior fellow at the Inter-American Dialogue, in the Latin American Advisor newsletter. "The proposed expropriation would eliminate individual savings, and convert them into a pay-as-you-go system, with large funds that could be spent almost freely by the Argentine government."

Sen. Ernesto Sanz of Mendoza, who opposed the nationalization, said: "We don't have any doubt that this is violating the right to private property. Not just for us, but for all society and the world. This is clearly confiscation."

The lower house of Argentina's National Congress approved the bill earlier this month. Officials said they expect the new system to be in place by the end of the year.

Byrnes reported from Buenos Aires.


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