In the FT today:
Throughout its history, the government of Argentina has often resorted to expropriating the property of its creditors and citizens. This month, in an ostensible move to protect the savings of workers in the face of a worldwide financial crisis, the administration of Christina Kirchner has proposed doing it again by nationalising private pension funds.
But the measure is a sad admission of government failure. Despite the recent boom in commodity prices, Argentina did not put funds aside during the fat years to prepare for the lean. More importantly, the decision's costs over the longer term are likely to be heavy.
The government has used state intervention in the US and Europe as rhetorical justification for the move. But that was governments bailing out the private financial sector. Only in Argentina has the private sector been forced to bail out the government.
The funds, amounting to about $26bn or about 10 per cent of gross domestic product, were often criticised for excessive fees and for mismanagement. But they played a slowly growing role in capital formation and their nationalisation will further damage prospects for private investment in a country already sorely deprived of it.
Confidence in Argentina, already at sub-basement levels, is bound to erode further. Argentines, who nearly 20 years ago woke up to find their bank deposits converted into 10-year government bonds, are already wondering what the government will expropriate next. It will engender a further loss of trust in the sanctity of contracts and increase worries about arbitrary exercise of government power.
The governments of many emerging economies now face a severe economic slowdown, but at least have the cold comfort that this was a crisis manufactured elsewhere. With this decision, Argentina's has made its predicament even worse.